(Reuters) - Oil rose above $107 a barrel on Thursday to hit a seven-week high as Middle East tension brought supply concerns into focus and as more optimistic investor sentiment about the global economy bolstered the demand outlook.

The killing of top Syrian security chiefs on Wednesday, and the attack on Israeli tourists in Bulgaria, which Israel accused Iran of carrying out, worsened the crisis in the Middle East, the source of more than a quarter of the world's oil.

Brent crude gained for a seventh straight day, rising $1.40 to $106.56 a barrel by 1258 GMT and hitting $107.48 earlier, the highest since May 30. U.S. oil gained 83 cents to $90.70.

Within just a week, prices have climbed by more than 8 percent, primarily on the back of geopolitical risks, said Carsten Fritsch, analyst at Commerzbank. The increase in the price of crude oil is likely to continue in the short term.

Analysts said the geopolitical concerns outweighed the latest U.S. Department of Energy supply report on Wednesday, which showed crude inventories in the world's top consumer fell less than expected last week.

Overall, we are more concerned about the latest bombings in Syria and Bulgaria than about the DOE statistics, said Olivier Jakob, analyst at Petromatrix, in a report.

Oil has already gained due to tension between Iran and the West over Iran's nuclear work. Sanctions on Iran have cut its exports and Iran has repeatedly threatened to close the Strait of Hormuz, a key oil transit route, unless they are revoked.

EQUITIES RALLY

Oil and other riskier assets such as equities have been drawing support from investor optimism the worst may be over for the global economy. European shares hit a 15-week high on Thursday, supported by upbeat earnings from companies such as Electrolux (ELUXb.ST).

U.S. government figures on Wednesday showed groundbreaking on new homes rose in June to its fastest pace in over three years, while Federal Reserve Chairman Ben Bernanke downplayed the risk of a double-dip recession.

But the number of Americans filing new claims for unemployment benefits rebounded last week. Initial claims for state unemployment benefits increased 34,000 to a seasonally adjusted 386,000, the Labor Department said on Thursday.

Brent has gained around 20 percent since falling to an 18-month low in late June. It had slumped since the year's high of more than $128 in March, weighed by concern demand would slow due to Europe's debt crisis and weaker growth in other regions.

Some technical indicators also suggested the rally could continue. Brent is in a positive momentum, having posted a string of higher highs and higher closes, Jakob said. Its relative strength index, a closely watched technical signal, is at 64, below the 70 mark indicating the market is overbought.

Brent is gaining additional support from constrained supply of the North Sea crudes which underpin the contract. The Buzzard oilfield will be shut for several weeks from early September, its operator Nexen (NXY.TO) said on Thursday. August North Sea supply is set to reach at 2012 low.

A decline in the dollar also supported oil. The dollar index .DXY slipped almost 0.2 percent on Thursday. The U.S. currency has been under pressure on expectations the Fed would opt for a third round of bond purchases, or quantitative easing, to support the economy.

A weakness in the currency tends to support dollar-denominated commodities such as oil.

(Additional reporting by Manash Goswami in Singapore; Editing by William Hardy)