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UPDATE 1-U.S. gasoline pump prices top $2 a gallon mark

(Adds details, FTC probe background, moves expectation of higher prices to paragraph 2)

NEW YORK, Feb 19 (Reuters) - Retail gasoline prices in the United States have broken above $2 a gallon in some major cities amid plunging domestic fuel supplies and mounting fears over a possible war on oil supplier Iraq.

Prices are expected to continue to rise as spring approaches -- potentially breaking new records -- as driving demand traditionally picks up with warmer weather and pressures inventories.

The average retail price for regular gasoline in San Francisco was $2.044 a gallon on Wednesday, while premium grades in cities like Los Angeles and Oakland were also above $2, according to the American Automobile Association.

The high fuel costs recall the sharp retail gasoline spike of the spring of 2001, when pump prices hit a nationwide record-high of $1.72 a gallon, and cities all over the West Coast and Midwest surged over $2 a gallon.

The fuel crunch, which is dealing a blow to consumers' pocketbooks and threatening the nation's economic recovery, highlights a need for the United States to become more independent from unreliable foreign oil supplies, the American Petroleum Institute (API) said on Wednesday.

"We're in the same fix we were in two years ago, and nothing's been done to fix the problems that existed then," said John Felmy, director of policy analysis and statistics at the API, which represents members of the oil industry.

The national average price U.S. drivers paid for gasoline increased 5.3 cents a gallon over the last week to $1.66 a gallon, the seventh highest on record, according to a separate survey by the Department of Energy.

Pump prices have risen along with higher crude oil costs, but some groups believe that fuel prices have risen higher than can be justified, setting off demands for an investigation by Federal Trade Commission.

Crude oil prices, which account for 40 percent of the price of gasoline, are near two-year highs around $37 a barrel as U.S. inventories dropped to 27-year lows following supply disruptions from Venezuela and fears that a U.S.-led war with Iraq would disrupt Middle East supplies.

However, Democratic Sen. Charles Schumer of New York on Sunday accused oil companies of gouging consumers at the pump and said gasoline prices have risen faster than crude costs. The lawmaker asked the FTC to investigate the matter.

The American Automobile Association said last week that the huge jump in pump prices was not justified and the group also wanted the government to investigate rising gasoline prices.

The FTC last investigated retail gasoline prices following price increases in the spring of 2000, but gave the oil industry passing grades, saying that energy infrastructure problems were the root of spikes at the pump.

As usual, the West Coast had the most expensive fuel, with the average price in the region up 10.7 cents to $1.786 a gallon, the DOE's statistical wing said Wednesday.

The Gulf Coast states had the cheapest gasoline, although the average price was up 2.5 cents to $1.581 a gallon.

In addition to gasoline, the nationwide price for diesel fuel increased 4.2 cents to a record $1.704 a gallon, up 55 cents from last year. (Additional reporting by Tom Doggett)