* Crude steady after early gains on supply concerns

* Clash between Moscow and mercenary group averted

* U.S. rig count falls for eighth straight week

LONDON, June 26 (Reuters) - Oil prices fell on Monday after a revolt by Russian mercenaries over the weekend, though the political instability did not appear to pose an immediate threat to oil supply from one of the world's largest producers.

Brent crude futures were down 8 cents, or 0.1%, at $73.77 a barrel by 0900 GMT. U.S. West Texas Intermediate crude (WTI) was down 17 cents, or 0.3%, at $68.99. Both benchmarks gained as much as 1.3% in early Asian trade.

A clash between Moscow and Russian mercenary group Wagner was averted on Saturday after the heavily armed mercenaries withdrew from the southern Russian city of Rostov under a deal that halted their rapid advance on the capital.

However, the challenge has raised questions about President Vladimir Putin's grip on power and some concern about possible disruption of Russian oil supply.

"Crude futures opened about $1 a barrel higher on Monday in a knee-jerk reaction to an aborted rebellion by the mercenary Wagner group in Russia," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

"But (prices) quickly began to surrender the gains as a calmer analysis indicated the situation in the country was stable for the time being and posed no threat to its oil and gas supplies."

Goldman Sachs analysts said markets could price in a moderately higher probability of domestic volatility in Russia leading to supply disruptions, adding that the impact could be limited because spot fundamentals have not changed.

The number of oil and natural gas rigs operated by U.S. energy companies - an early indicator of future output - fell for an eighth week in a row for the first time since July 2020, a closely followed report showed on Friday.

Both Brent and WTI prices fell by about 3.6% last week on worries that further interest rate hikes by the U.S. Federal Reserve could sap oil demand at a time when China's economic recovery has also disappointed investors.

"China's economic growth has been a nightmare for commodity markets, particularly in oil and industrial metals," CMC Markets analyst Tina Teng said in a note. (Reporting by Noah Browning Additional reporting by Florence Tan and Sudarshan Varadhan Editing by David Goodman)