LONDON (Reuters) - Oil rose above $123 a barrel on Friday, reversing three straight sessions of losses, supported by a weaker dollar and expectations of tight gasoline supplies in the world's largest oil consumer the United States.

Front-month Brent crude futures rose 81 cents to $123.20 a barrel by 0905 GMT (05.05 a.m. EDT), recovering from its sharpest daily fall in more than three weeks.

U.S. crude futures were 43 cents up at $103.21 after posting their biggest two-day slide since mid-December.

Persistent worries of a supply disruption in the Middle East underpinned oil but gains were capped by worries some Western nations will release oil stocks, increasing supply and tempering prices, and concerns the euro zone crisis had not been tamed.

"Prices are still very rangebound," said Amrita Sen from Barclays in London. "Overall prices are within a range, still constrained by fears on upside of strategic petroleum release and on the downside by the strong fundamentals and geopolitical concerns."

The first quarter brought gains for the Brent futures contract of more than 14 percent, tracking those in global equities as investors began the year in 'risk on' mode as the European Central Bank continued to offer cheap money to banks.

MSCI's main global stock index <.miwd00000pus>, which hit an eight-month high earlier this week, has rallied by around 11 percent in the year to date.

The dollar index hit a one-month low against a basket of currencies, extending losses from earlier in the week following dovish comments on U.S. monetary policy and softer economic data.  A weaker greenback supports dollar-denominated commodities such as oil and gold, rendering them cheap for other currency holders.

"In terms of first quarter, we've seen a significant escalation in geopolitical tensions and tighter than expected fundamentals," Barclay's Sen added.

"Unless we see a catalyst on either side we will remain range bound. There is a very high probability of a strategic release so the market will be quite nervous to move too high too quickly bearing that in mind."

Strong gasoline prices of almost $4 a gallon on average in the United States, the world's largest consumer of the motor fuel, have become a hot issue ahead of the country's presidential election in November.

Traders are bullish on gasoline as the shutdown of several refineries could reduce supply of the motor fuel in the U.S. East Coast, analysts said. Front-month April RBOB gasoline were 0.49 percent up at $3.4172 a gallon.

Nearly 430,000 barrels per day of refining capacity were idled in the United States by the end of 2011.

The focus in Europe was on the meeting of euro zone finance ministers on Friday, with a deal expected to temporarily almost double their financial backstops as one of the final moves to end the sovereign debt crisis, although Germany continues to favor a smaller increase.

Graphic of oil volatility index: https://r.reuters.com/pug47

Graphic on U.S. crude's technical break:

https://r.reuters.com/zah47s

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MIDEAST SUPPLY

Tough sanctions by the West targeting Iran's nuclear program have curbed oil exports from the Islamic Republic and supply could tighten further from July 1 when a ban on European insurance cover for Iranian oil takes effect.

The tension in the Middle East and the peak gasoline demand season in the United States could push U.S. crude futures as high as $120 in the second quarter, said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments.

The surge in oil prices has prompted the United States, with Britain and France, to consider a release from emergency stockpiles to cut fuel costs. Other countries, including South Korea and Japan, may join the plan.

Consumer nations may seek reassurance from Saudi Arabia that it will not cut oil production and neutralize the impact on oil prices if they tap emergency reserves, industry and diplomatic sources said.

U.S. President Barack Obama is likely to determine by Friday that there will be enough oil in the world market to allow countries to cut imports from Iran, taking another step toward sanctioning nations that do not, analysts and a congressional aide said.

(Additional reporting by Florence Tan in Singapore; editing by James Jukwey)

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