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UPDATE 7-Brent oil rises above $110, EIA gasoline draw supports

* Cushing stocks fall 1.5 mln barrels, US total gains -EIA

* Gasoline stocks fall 1.8 mln barrels vs forecast for rise

* Libyan oil production at just 155,000 bpd - NOC official

(Adds EIA data, updates prices)

LONDON, May 29 (Reuters) - Brent crude rose above $110 a barrel on Thursday on signs of stronger demand from top oil consumer the United States, with a sharp drop in U.S. gasoline stocks adding to data showing a strengthening economy.

The U.S. Energy Information Administration (EIA) reported gasoline stocks in the United States fell 1.8 million barrels last week, countering expectations for a rise and posting a bigger draw than reported by an industry group on Wednesday.

U.S. crude stocks rose overall by 1.7 million barrels, the EIA said, though they fell by 1.5 million barrels at Cushing, Oklahoma, delivery point of the U.S. crude oil futures contract.

The brighter demand outlook underpinned prices already boosted by concerns about the loss of most supply from Libya and as the situation in Ukraine creates a widening rift between the West and Russia, the world's second-largest oil exporter.

Brent crude was up 63 cents at $110.44 a barrel by 1503 GMT, setting a new high for the day after the EIA data, and after losing 21 cents on Wednesday.

U.S. crude oil gained 56 cents to $103.28 after ending Wednesday down $1.39 as traders booked profits.

Still, some investors looking at price charts saw the market as prone to a correction as it has risen close to the top of the narrow price band in which it has traded for much of 2014.

"Futures prices are still supported by the risk premium related to Libya and Ukraine, though most of that is priced in by now," Andrey Kryuchenkov at VTB Capital in London said.

"There are signs of weakness, though, with prices in the physical market easing and expectations of more cargoes coming out of the North Sea in June. Brent prices may pull back towards $107 a barrel."

In the North Sea spot market, cargoes of Forties crude oil, the largest crude stream underpinning the Brent futures contract, fell to a discount of 85 cents a barrel versus dated Brent on Wednesday, the weakest level in two years.

The U.S. benchmark fell more sharply than Brent overnight because it failed to breach key resistance at $105 a barrel, said Ken Hasegawa, a commodity sales manager at Newedge Japan.

Brent has recovered 3 percent from a low of $106.85 touched on May 1, while the U.S. benchmark has gained more than 4 percent over the same period.

U.S. CRUDE DISCOUNT

U.S. crude's discount to Brent was around $7.10 a barrel on Wednesday, increasing by almost $1.50 a barrel in the past two sessions and above the average difference of $6.86 between the two benchmarks over the last 50 days.

On Wednesday, the United States reported a larger-than-expected drop in jobless claims, in the latest sign that the economy of the world's largest oil consumer is strengthening.

That overshadowed data showing a contraction in the economy in the first quarter, which has been largely blamed on the very severe winter.

In Libya, acting prime minister, Abdullah Al-Thinni, refused to hand over power to a newly elected premier after questioning his legitimacy in a deepening confrontation among the OPEC nation's rival factions.

Libya's oil output has dropped to just 155,000 barrels per day (bpd) amid the current political crisis, a National Oil Company official said on Monday, well below the post-civil war peak near 1.4 million bpd.

Oil traders were watching the situation in Ukraine, where pro-Russian separatists shot down an army helicopter on Thursday, as government forces pressed ahead with an offensive to crush rebellions in the east following the election of a new president.

(Additional reporting by Manash Goswami in Singapore; editing by Jane Baird, Keiron Henderson and Pravin Char)