UPDATE 11-Oil ends up as pre-holiday covering offsets Gaza truce

* Egypt announces Gaza truce from 1900 GMT

* Drop in U.S. crude, fuel stocks offers limited support

* Trade begins to thin ahead of U.S. Thanksgiving holiday

(Recasts, adds closing prices, adds byline)

NEW YORK, Nov 21 (Reuters) - Oil ended higher after thin,

volatile trading on Wednesday, as late-day short-covering ahead

of a U.S. holiday offset earlier relief over a ceasefire that

ended eight days of fighting in the Gaza strip.

While U.S. financial markets drifted quietly toward

Thursday's Thanksgiving holiday, oil prices were whipsawed

between fears of a deepening conflict between Israel and Hamas

and hope for a ceasefire. Volatility was exacerbated by subdued

oil market activity, with turnover about a third below average.

Prices rose by more than $1.50 a barrel early in the day

after an explosion on a Tel Aviv bus. But a truce announced at

midday eased concerns that a week of intensive Israeli fire on

the Gaza Strip and militant rocket attacks out of the enclave

could widen, engulfing regional oil exporters.

U.S. government data showing an unexpectedly large drop in

weekly fuel stockpiles -- as well as modestly upbeat economic

indicators -- gave an early boost to gasoline and heating oil

prices, which outperformed crude. But ultimately it was too

little to offset a sense of pre-holiday malaise.

"I'm seeing the market's pulse become fainter and fainter,"

said Tim Evans, energy analyst for Citi Futures Perspective in

New York. "I think some traders are just getting an early start

on the Thanksgiving holiday rather than putting on risk or even

reacting to the headlines."

The current Middle East turmoil is more likely to be a

"limited conflict" similar to the war with Hezbollah in July

2006 than a wider, more prolonged one, Evans said.

Brent crude futures gained $1.03 or 0.9 percent to

settle at $110.86 a barrel, bouncing off a midday low of $109.55

barrel shortly after the Gaza truce was announced. Trading

volume of around 400,000 lots was a quarter below the average.

U.S. crude oil futures rose 63 cents or 0.7 percent

to settle at $87.38 a barrel on Wednesday, about 50 cents below

the session high. Benchmark gasoline and heating oil

futures each rose by more than 1 percent.

Egyptian Foreign Minister Mohamed Kamel Amr announced that a

ceasefire would come into force at 9 p.m. (1900 GMT), halting a

conflict that has killed more than 140 Palestinians and five

Israelis. U.S. Secretary of State Hillary Clinton said Egypt was

assuming "responsibility, leadership" in the region.

Israeli Prime Minister Benjamin Netanyahu told U.S.

President Barack Obama he was ready to give the ceasefire a

chance, but that "more forceful action" might be needed if it

failed, according to a statement from his office.

FUNDAMENTAL REFOCUS

Although little oil is produced in Israel, concern that

major hydrocarbon producing Arab nations could become involved

in the conflict has aroused fears that supplies from the Gulf

can be disrupted.

If the truce holds, however, focus may return to the

market's moribund underlying fundamentals. Euro zone finance

ministers ended a meeting in Brussels on Wednesday without

agreement on the next tranche of loans to Greece.

"The Middle East tensions could continue to give prices some

life in the near term but we suspect that bearish economic

factors will be dominant," said Jeremy Friesen, commodity

strategist at Societe Generale in Hong Kong.

And U.S. economic data offered limited cause for hope.

Manufacturing grew in November at its quickest pace in five

months and new jobless claims dropped, but consumer sentiment

showed only a marginal improvement.

STOCKS DRAW

U.S. crude and refined product stocks fell last week as

plants processed more crude and imports dropped, data from the

U.S. Energy Information Administration showed.

Total U.S. crude oil inventories fell 1.47 million barrels

in the week to Nov. 16 to 374.47 million barrels, after analysts

polled by Reuters had forecast a build of 900,000 barrels.

U.S. inventories of distillates, which include diesel and

heating oil, fell 2.68 million barrels to 112.84 million

barrels, compared with forecasts for a smaller,

1.4-million-barrel drawdown. Along the East Coast, distillate

inventories fell 1.63 million barrels to the lowest levels since

May 2008.

"The fall in inventories comes on the back of improving

demand and continued high levels of exports," analysts at Energy

Aspects said in a report. More cold weather in the Northeast is

likely to deepen the deficit in regional fuel stocks.

(Additional reporting by Simon Falush and Shadia Nasralla in

London, Jessica Jaganathan in Singapore; editing by William

Hardy, Keiron Henderson, Marguerita Choy, Leslie Gevirtz and Bob

Burgdorfer)

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