I wanna hug him and return his feelings but?

[Andrew]

Just go up to him one day and just randomly hug him, or put your hand on him (ie. on his shoulder) and see how he reacts.

You say he looks at you, which means he finds you interesting so it wouldn't hurt to just start a conversation with him (make sure his not busy with anything).

His friends would have only "made up the rumor" because he must have talked to them about you.

He's interested in you, and if you are interested in him just try to strike up a conversation with him every chance you get. Get to know him a little better.

You say he's shy so he might not give very lengthy answers (ie. he might give one word answers) but that doesn't mean he's not interested in the conversation.

Good luck