Oil prices dropped on Thursday as the Arab League said a peace plan for Libya put forward by Venezuela's Hugo Chavez was under consideration, while upbeat U.S. economic news helped lift Asian stock markets.

U.S. stock index futures were firmer, pointing to a higher opening on Wall Street, which eked out small gains on Wednesday.

Brent crude futures fell more than $3 a barrel to an intraday low of $113.09 after the head of the Arab League said a peace plan for Libya, proposed by Chavez, was under consideration.

However, Brent quickly retraced some of the losses to stand at $114.67, down 1.4 percent on the day.

We have been informed of President Chavez's plan but it is still under consideration, Amr Moussa, the secretary-general of the Arab League, told Reuters by telephone on Thursday.

We consulted several leaders yesterday, he said, without providing a deadline to decide on the plan.

When asked if Muammar Gaddafi had accepted the plan, Moussa said: I don't know, how am I supposed to know that?

In answer to a question on whether he had agreed to the Chavez plan, Moussa said: No.

U.S. crude fell 1.2 percent to $101, after hitting a high of $102.94.

News of the plan comes as Gaddafi's Libyan army faced an increasingly organized and confident rebel force which is appealing for international support and looking to take its military successes west toward the capital Tripoli.

Oil investors are concerned that growing instability in Middle East oil producers if public protests against incumbent leaders spread, could threaten global supplies.

Bank of America Merrill Lynch analysts argue the oil shock from Libya ranks as the eighth largest supply shock since 1950.

The stability of the region has gone through a major shock and the ripples are going to be felt for a while, said Carl Larry, president of Oil Outlooks and Opinions based in Houston.

Gold, often sought in times of heightened geopolitical tensions and as an inflation hedge, slipped to around $1,424 an ounce, down from a record high just above $1,440.

Tokyo's Nikkei average <.N225> closed 0.9 percent higher, a day after it suffered its biggest fall this year, while stocks elsewhere in Asia <.MIAPJ0000PUS> were 1 percent firmer.

It's too early to be optimistic because concerns about rising oil prices will likely persist, Masumi Yamamoto, a market analyst at Daiwa Securities Capital Markets, cautioned.

But investors might have oversold yesterday, so they may buy back stocks with good fundamentals.

South Korea's KOSPI <.KS11>, which plumbed a three-month low on Wednesday, was among the best performers in the region, advancing 2.2 percent on the day.

Hong Kong's Hang Seng index <.HSI> was modestly higher, while the Shanghai Composite Index <.SSEC> was slightly lower.

Wall Street eked out small gains on Wednesday with the S&P 500 index <.SPX> ending 0.2 percent higher after the Federal Reserve's Beige Book suggested economic activity picked up in 2011 and a private survey pointed to strong private-sector hiring.

The private-sector jobs report bodes well for the influential non-farm payrolls data due on Friday.

EURO PINS HOPES ON ECB

In the currency market, the euro held its ground against the dollar after rallying to near four-month highs. The single currency is expected to stay supported ahead of the European Central Bank policy meeting.

Markets expect the ECB to sharpen its anti-inflation rhetoric, reinforcing views the ECB will raise interest rates before the U.S. Federal Reserve.

The euro last traded at $1.3866, having climbed as high as $1.3890. The dollar index <.DXY>, which tracks its performance against a basket of major currencies, was little changed on the day at 76.69. It fell to 76.529 overnight, its lowest level since early November 2010.

Still, some analysts warn the rally in the euro will probably fizzle after the ECB meeting.

There has been a lot of hype in the market on the ECB for some time, so I expect the euro to lose steam pretty much regardless of what the ECB does today, said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

(Additional reporting by Luke Pachymuthu in Singapore and Ayai Tomisawa and Hideyuki Sano in Tokyo; Editing by Tomasz Janowski and Neil Fullick)

Libya