LONDON, March 12 (Reuters) - Arsenal manager Arsene Wenger says his improving young side can catch Liverpool in the Premier League after they recorded a 2-1 win over the third-placed Merseysiders on Sunday.

Arsenal knocked Real Madrid out of the Champions League in midweek but have not been at their best this season in domestic competition.

Sunday's victory put the north London club in fifth position, two points behind neighbours Tottenham Hotspur and eight adrift of Liverpool.

"I think we can catch Liverpool," Wenger told reporters. "I thought if we could win the game today, we could do it."

Wenger said his team had gained extra confidence from reaching the quarter-finals of the Champions League.

"We gave a lot (against Real) on Wednesday night but I feel it was a third great performance from the team in a week," said Wenger.

Arsenal also crushed Fulham 4-0 at Craven Cottage eight days ago.

"This team is slowly discovering its potential and is improving its belief and confidence," added Wenger.

Thierry Henry scored both goals against Liverpool, claiming the winner after latching on to a poor backpass from England midfielder Steven Gerrard.

Wenger singled out 18-year-old Spanish midfielder Cesc Fabregas for special praise.

"I've seen many young players and he is one of the best," said the Frenchman.