* Brent hits $74.77/bbl, highest since Aug. 8
* U.S. crude stocks fall as refining holds near record high -EIA
* Prices supported by oil supply cut due to Iran sanctions
* Iran threatens to hit United States, Israel (New throughout, updates prices, market activity and comments)
By Stephanie Kelly
NEW YORK, Aug 22 (Reuters) - Oil prices rose more than 2 percent on Wednesday, with Brent crude futures hitting a two-week high, after U.S. government data showed a larger-than-expected draw in domestic crude inventories and as Washington's sanctions on Iran signaled tightening supplies.
Brent crude futures rose $1.92 to $74.55 a barrel, a 2.6 percent gain, by 12:58 p.m. EDT (1658 GMT). The global benchmark reached $74.77 during the session, the highest since Aug. 8.
U.S. West Texas Intermediate (WTI) crude futures rose $1.93 to $67.77 a barrel, a 2.9 percent gain.
U.S. crude inventories fell 5.8 million barrels last week, the Energy Information Administration said, exceeding the 1.5 million-barrel draw forecast by analysts polled by Reuters.
Refinery crude runs slipped 89,000 barrels per day from the previous week's record high to 17.9 million bpd, EIA data showed. Refinery utilization rates remained unchanged last week at 98.1 percent of total capacity, the highest rates since 1999.
"As refinery runs continue to kick around close to a record high - easing just 89,000 bpd last week - and as imports have dropped off on the prior week, crude inventories have shown a solid draw, particularly on the U.S. Gulf Coast," said Matt Smith, director of commodities research at ClipperData.
Oil also found support from a weaker dollar, which has slipped this week in response to U.S. President Donald Trump's comment that he was "not thrilled" by the Federal Reserve's interest rate increases.
A weaker dollar makes oil less expensive for buyers using other currencies.
Oil prices also drew support from the prospect of a drop in crude exports from Iran in response to new U.S. sanctions on the No. 3 producer in the Organization of the Petroleum Exporting Countries.
European oil companies have started to cut back on Iranian purchases, although Chinese buyers are shifting their cargoes to Iranian-owned vessels to keep supplies flowing.
"The Iran issue continues to occupy traders' minds," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Ratcheting up tensions, Iran warned on Wednesday it would hit U.S. and Israeli targets if it were attacked by the United States after Trump's security adviser said Washington would exert maximum pressure on Tehran going beyond economic sanctions.
OPEC has started to boost supplies following a deal with Russia and other allies in June, although producers have been cautious so far. Saudi Arabia told OPEC it cut supply in July, rather than increasing output as expected.
Signs of tighter supply countered concern about slowing oil demand stemming partly from the trade dispute between the United States and China, the world's two largest economies.
U.S. and Chinese officials were set to resume talks on Wednesday, but Trump said he expected there will be no real progress. (Additional reporting by Alex Lawler in London and Jane Chung in Seoul; Editing by Marguerita Choy and David Gregorio)