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SINGAPORE, Mar 29 (Reuters) Oil prices edged under $66 on Wednesday after a sharp rally that came on continued worries over supply disruptions and on expectations of falling U.S. gasoline stocks ahead of peak summer demand.

U.S. light crude traded 12 cents down at $65.95 a barrel by 0357 GMT, after surging $1.91 on Tuesday to the highest level since early February. London Brent crude traded 4 cents lower at $64.93 a barrel.

Prices have stayed above $60 for more than a month as traders are worried about threats to slashed Nigerian supplies and geopolitical tension over Iran's nuclear programme, ahead of the peak summer gasoline demand season in the northern hemisphere.

''It's rallying into the beginning of the driving season, on the fear of supply shortages,'' said John Brady of ABN AMRO in New York. ''We may also see a decent flow of index money at the start of the second quarter and some people may be frontrunning that.'' Analysts expect already comfortable U.S. crude stockpiles to have risen by a further 800,000 barrels last week in U.S.

government data due later on Wednesday, but predict distillate fuels and gasoline will both fall over a million barrels Heavy U.S. refinery maintenance has reduced output while traders worry about a switch to use more ethanol in the motor fuel. New York gasoline futures firmed up further on Wednesday after surging 3 percent on Tuesday.

Dealers were watching a workers strike in France that lightly reduced operations at some refineries, causing fuel supply worries in a country that exports excess gasoline to top consumer the United States.

Output worries in Nigeria remain. President Olusegun Obasanjo has called a meeting with groups from the oil-producing Niger Delta to try to tackle the crisis in the world's eighth-largest crude exporter.

The meeting raised hopes that the government and militants were moving towards a negotiated truce that could permit oil companies to restore 630,000 barrels per day (bpd), or about 26 percent of output shut by militant attacks in the vast southern wetlands.

The threat of sanctions against Iran over its nuclear programme also lingered in the background, though Western powers softened a draft U.N. Security Council statement on reining in Iran's uranium enriching efforts.

Foreign ministers from the five veto-holding permanent members of the council meet in Berlin on Thursday in an effort to end a deadlock over how to proceed.

In Iraq, oil exports from sabotage-hit northern oilfields via Turkey may take a further eight to 12 months to restore, as a key pipeline has been totally destroyed, the country's oil minister told Reuters.

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