Wires

UPDATE 2-Brent jumps nearly $3 after U.S. air strike kills Iran, Iraq officials

Florence Tan and Seng Li Peng

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* Senior Iranian, Iraqi military officers killed at Baghdad

* U.S. carried out strikes on two targets linked to Iran

* China cuts bank reserves to shore up slowing economy (Adds comments, updates prices)

SINGAPORE, Jan 3 (Reuters) - Brent crude futures jumped nearly $3 on Friday to their highest since September after a U.S. air strike killed key Iranian and Iraqi military personnel, raising concerns that escalating Middle East tensions may disrupt oil supplies.

Brent, the international benchmark, hit an intraday high of $69.16 a barrel, its highest since Sept. 17, before easing to $68.21, up $1.96, or 3%, by 0618 GMT.

U.S. West Texas Intermediate (WTI) crude futures were trading up $1.68, or 2.8%, at $62.86 a barrel, having earlier spiked to $63.84 a barrel, the highest since May 1.

"The supply side risks remain elevated in the Middle East and we could see tensions continue to elevate between the U.S. and Iran-backed militia in Iraq," said Edward Moya, analyst at brokerage OANDA, in an e-mail to Reuters.

An air strike at the Baghdad International Airport early on Friday killed Iranian Major-General Qassem Soleimani, head of the elite Quds Force, and Iraqi militia commander Abu Mahdi al-Muhandis, an Iraqi militia spokesman told Reuters.

Soleimani's killing marks a dramatic escalation in the regional "shadow war" between Iran and the United States and its allies. Iranian Supreme Leader Ayatollah Ali Khamenei vowed harsh revenge.

"There is an ever present risk that Iraq would be the theater where the struggle between the U.S. and Iran would play out," Helima Croft, RBC Capital Markets' global head of commodity strategy said in a note.

Iraq, the second largest producer among the Organization of the Petroleum Exporting Countries, exports about 3.4 million barrels per day of crude mostly from southern Basra port.

"The surge in oil price just now was primarily driven by news of U.S. air strike killing a high-level general of Iran," said Margaret Yang, market analyst of CMC Markets.

Oil prices were also lifted by China's central bank saying on Wednesday it was cutting the amount of cash that banks must hold in reserve, releasing around 800 billion yuan ($115 billion) in funds to shore up the slowing Chinese economy.

This came shortly after data showed China's production continued to grow at a solid pace and business confidence shot up.

"Oil prices still have room for further upside as many analysts are still having to upgrade their demand forecasts to include a rather calm period on the trade front," Moya said, referring to warming trade relations between China and the United States.

"President Trump is likely to take a break on being 'tariff man' until we get beyond the presidential election in November." (Reporting by Florence Tan and Seng Li Peng; Editing by Tom Hogue and Richard Pullin)