UPDATE 3-BP's fine for Gulf of Mexico spill capped by ruling

(Adds price reaction, analyst)

HOUSTON/LONDON, Jan 16 (Reuters) - BP Plc will face amaximum fine of $13.7 billion under the Clean Water Act for itsGulf of Mexico oil spill, several billion dollars less thanfeared, after a judge ruled that it was smaller than the U.S.government claimed.

The ruling by federal magistrate Carl Barbier put the sizeof the worst offshore spill in U.S. history in 2010 at 3.19million barrels.

That was well below the government's estimate of 4.09million barrels, which could have led to penalties of up to$17.6 billion.

BP's stock rose 2.4 percent in London by 0920 GMT on Friday,outperforming the broader energy index, as investorsworried about the size of potential penalties breathed a sigh ofrelief.

"The ruling is a step in the right direction of what appearsset to be a long and hard-fought legal battle," Barclays said ina research note.

Under a "gross negligence" ruling Barbier issued inSeptember, BP could be fined a statutory limit of up to $4,300for each barrel spilled, though he has authority to assign lowerpenalties.

A simple "negligence" ruling, which BP sought, caps themaximum fine at $1,100 per barrel.

The Clean Water Act penalties would come on top of more than$42 billion the oil major has set aside or spent for clean-up,compensation and fines. About 810,000 barrels were collectedduring clean-up.

In his ruling on Thursday, Barbier said BP's response to thedisaster was not grossly negligent, but stuck to his earlieropinion that it had been grossly negligent leading up to theMacondo well blowout.

Penalties will be assigned after the third and final phaseof the company's non-jury trial, which starts on Tuesday in NewOrleans. BP lawyers are expected to argue for a small fine perbarrel.

"BP believes that considering all the statutory penaltyfactors together weighs in favor of a penalty at the lower endof the statutory range," a BP spokesman said.

The first two phases of the trial, over the degree ofnegligence and the size of the spill, have concluded.

Even after the Clean Water Act fines are set, BP may faceother bills from a lengthy Natural Resources Damage Assessment-- which could require BP to carry out or fund environmentalrestoration work in the Gulf -- as well as other claims. (Reporting By Jonathan Stempel, additional reporting by DmitryZhdannikov in London,; Writing by Terry Wade; Editing by BernardOrr and Keith Weir)