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UPDATE 7-Oil prices spike on escalating Iraq violence

* Brent hits 3-month high over $112 on Iraq supply worries

* Iraqi Kurds seize control of northern oil city Kirkuk

* Insurgents surround Iraq's largest refinery in Baiji

(Updates prices, adds analyst quote)

NEW YORK, June 12 (Reuters) - Brent crude oil jumped 2 percent to above $112 a barrel on Thursday on mounting concerns that escalating violence in Iraq could disrupt oil supplies from the second-largest OPEC producer.

Sunni Islamist rebels, which took over Iraq's second-biggest city Mosul earlier this week, on Thursday surrounded the country's largest refinery in the northern town of Baiji and extended their advance south toward Baghdad.

"The fear is that will cause a threat to Iraqi oil exports," Christopher Bellew, a trader at Jefferies Bache, said. "If this conflict knocked out Iraq as an exporter, that would have significant impact on prices."

The international benchmark Brent futures rose $2.15 to $112.10 a barrel by 12:13 p.m. EDT (1613 GMT), after earlier hitting $112.34, the highest point since March 3.

Gains in the U.S.-benchmark crude were capped by high domestic production and low imports from Iraq, analysts said.

U.S. oil gained $1.52 to $105.92 a barrel, after earlier reaching $106.53, the highest since Sept. 19.

After an initially muted response, the oil markets gave way to growing alarm, as the Sunni rebels appeared to make rapid advances toward the Shi'ite-led government in Baghdad, threatening the country's future as a unified state.

Concern that the Baghdad-controlled Iraqi army was disintegrating and could no longer secure key oil facilities was exacerbated when soldiers fled the northern oil city of Kirkuk, leaving it in the hands of Kurdish forces.

Sunni insurgents overran Tikrit, threatening the 300,000-barrel per day Baiji refinery that supplies Baghdad. The refinery remained under government control on Thursday, the country's Oil Minister Abdul Kareem Luaibi said, but a witness who lives nearby later said militants had arrived in more than 50 vehicles to surround it.

The bulk of Iraq's oil production and export facilities are in largely Shi'ite areas in the south of the country, however, where al Qaeda-inspired groups enjoy little sympathy. Those facilities, which ship about 2.6 million bpd, were "very, very safe", Luaibi said on Wednesday.

"There are no immediate oil export implications in as much as the latest news is about Kirkuk ... and that has a limited impact," said Gareth Lewis-Davies, a strategist at BNP Paribas. "The big fear is if they get south of Baghdad. But there is no immediate indication that this will happen."

In 2013, the United States imported 341,000 bpd from Iraq, which represents less than 4 percent of the country's total crude oil imports, according to U.S. government data.

"In a post-shale U.S. crude oil universe, it becomes a little more difficult for the oil market to really price in what's happening in Iraq," said Richard Hastings, macro strategist at Global Hunter Securities in Charlotte, North Carolina.

Investors were watching for the release of key economic data from the United States later on Thursday and figures from China on Friday for industrial production and retail sales.

(Additional reporting By Lin Noueihed in London and Keith Wallis in Singapore; Editing by Dale Hudson, Susan Thomas and Marguerita Choy)