Brent crude futures dipped on Thursday after five days of gains, hovering around $122 a barrel on concerns that strong prices could crimp demand, with the European Central Bank lifting rates to control inflation.

Brent crude shed 28 cents to $122.02 a barrel by 1157 GMT. It hit a 2-1/2-year high above $123 on Wednesday, driven by violence in the Middle East.

U.S. crude futures eked out gains, taking on 4 cents to $108.87 a barrel after touching $109.15 on Wednesday, their highest level since September 2008.

The European Central Bank fulfilled expectatives by raising its key interest rate by 25 basis points to 1.25 percent on Thursday, as it seeks to counter firming pricing pressure.

The widely anticipated move was in line with the forecasts of analysts polled by Reuters, and analysts said had already been priced in by the markets.

At current crude oil prices, the risk is turning more and more to the amount of potential demand destruction, Petromatrix's Olivier Jakob said.

Euro zone debt worries and inflation are high on the agenda after Portugal overnight asked for a EU bailout and on concerns that a rise in euro zone interest rates would push up the cost of debt for already highly indebted economies. Eyes remain now on ECB President Jean-Claude Trichet's news conference at 1230 GMT for signs of future policy.

Oil prices slipped even after rebels said Muammar Gadaffi damaged a pipeline connecting oilfields to the port town of Marsa el Hariga. Analysts noted the supply disruptions may have already been priced in.

We can't possibly justify a further sustained boost to prices unless unrest erupts in an oil-producing country other than Libya with serious threats to crude supplies, VTB Capital analyst Andrey Kryuchenkov said.

Strong crude futures have pushed up prices at the pump globally, further exacerbating the inflationary pressure governments face from the rising cost of food and raw materials.

In Asia, China's central bank lifted interest rates this week for the fourth time since October as it ramps up the battle against inflation.

Current price levels should have a negative impact on demand, said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.

The International Energy Agency said on Wednesday that the current oil price is harming global economic growth and is a mounting concern for consuming nations.

Saudi Arabia and the United Arab Emirates have raised output to compensate for supply loss from Libya, but there has been no coordinated supply policy response from OPEC to rein in high prices.

The nature of this lack of response and general drift of recent policy statements suggests that producers are a long way from seeking actively to bridle in the upside for prices, leaving the door to $130 Brent swinging open, analysts at Barclays Capital led by Paul Horsnell said in a note.

On the data front, U.S. weekly jobless claims, due later on Wednesday, were expected to have dipped to 385,000 in the week ended April 2. The recent decline in filings for unemployment benefits has coincided with faster job growth.

On Wednesday, weekly U.S. government data showed that gasoline demand at the world's top oil consumer fell 1.2 percent from year-ago levels as prices at the pump neared $3.70 a gallon.

Gasoline demand should pick up as the U.S. driving season begins, but high prices would temper growth in consumption.

(Additional reporting by Florence Tan in Singapore; editing by William Hardy)

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