LONDON - Oil prices extended gains on Thursday, buoyed by a bigger than expected decline in crude stocks in the United States, the world's largest oil consumer.

Brent futures rose 41 cents, or 0.5%, to $85.49 a barrel by 0819 GMT and U.S. West Texas Intermediate (WTI) crude was up 69 cents, or 0.8%, at $83.54, with both having registered gains in the previous session.

U.S. crude inventories fell by 4.9 million barrels last week, data from the U.S. Energy Information Administration showed on Wednesday. That exceeds a decline of 30,000 barrels forecast by analysts in a Reuters poll and a drop of 4.4 million barrels in an American Petroleum Institute report.

"Healthy demand signals from the U.S. outweigh concerns from modest Chinese growth last week," said Priyanka Sachdeva, senior market analyst at Phillip Nova.

"Hopes of a Fed easing (of interest rates), which can boost economic growth, and current summer travel in the U.S. are ensuring enough traction in oil demand from the world's largest economy."

The prospects of cuts to interest rates in both the U.S. and Europe over the coming months helped to support the market.

Federal Reserve officials said on Wednesday that the U.S. central bank is closer to cutting rates given inflation's improved trajectory and a labour market in better balance, possibly setting the stage for a reduction in September.

U.S. economic activity expanded at a slight to modest pace from late May through early July with firms expecting slower growth ahead.

The European Central Bank, meanwhile, is all but certain to keep interest rates unchanged on Thursday, but it signalled that its next move is likely to be a cut.

Investors are also awaiting policy news from a leadership gathering in China that is to end on Thursday.

The dollar eased on Thursday for a third straight session. A weaker U.S. currency can boost demand for oil by making dollar-priced commodities cheaper for buyers holding other currencies.

(Reporting by Paul Carsten in London, Arathy Somasekhar in Houston and Jeslyn Lerh in Singapore Editing by David Goodman)