LONDON - Oil prices were largely steady on Thursday as a surprise build in U.S. stockpiles fuelled fears about slow demand from the world's top oil consumer and countered supply concerns stoked by escalating conflict in the Middle East.

Brent crude oil futures were up 43 cents, or 0.5%, at $85.68 a barrel by 0850 GMT. U.S. West Texas Intermediate crude futures rose 42 cents, or 0.5%, to $81.32.

Both benchmarks had settled slightly higher on Wednesday.

The U.S. Energy Information Administration (EIA) reported a 3.6 million barrel jump in the country's crude oil stocks last week. Analysts polled by Reuters had expected a drawdown of 2.9 million barrels.

U.S. gasoline stocks also rose, increasing by 2.7 million barrels. That compared with analyst expectations for a 1 million barrel draw.

"The actual readings were nothing short of disappointing for bulls that look for a continued (market) tightening brought about by seasonal demand," said PVM Oil analyst John Evans.

"If it were not for the steady and incremental ratcheting up of geopolitical risk in the Middle East, oil prices might have found themselves on the back end of a much more negative day."

Worries over the potential for the the Israel-Hamas war in Gaza spreading to Lebanon limited price declines.

Cross-border strains between Israel and Lebanon's Hezbollah have been escalating in recent weeks, stoking fears of a war that could draw in other regional powers, including major oil producer Iran.

Turkish President Tayyip Erdogan said his country stood in solidarity with Lebanon and called on the region's countries to show their support.

Israeli forces pounded several areas across Gaza on Wednesday and residents reported fierce fighting overnight in Rafah in the south of the Palestinian enclave.

(Reporting by Noah Browning Additional reporting by Yuka Obayashi in Tokyo and Jeslyn Lerh in Singapore Editing by David Goodman)