Brent hovers near $110 as US demand worries resurface

* U.S. fiscal talks in focus as deadline nears

* Renewed Iran-U.S. tensions trigger supply worries

* Coming up: U.S. EIA petroleum status report at 1530 GMT

SINGAPORE Dec 5 (Reuters) - Brent crude was steady around

$110 a barrel on Wednesday, nursing losses from the previous two

sessions, as investors fretted over the U.S. fiscal crisis

hurting oil demand despite supply fears fanned by Middle East

tensions.

President Barack Obama and Republican lawmakers are locked

in a battle over measures to tide over the so-called "fiscal

cliff", a program of spending cuts and tax increases that could

push the world's top oil consumer back into recession.

Such a development will worsen the outlook for oil demand,

given subdued services data from China, weak U.S. manufacturing

data from earlier this week and the debt crisis in Europe that

could plunge their economies deeper into recession.

"There are a lot of push-pull factors in the oil markets at

the moment; with the fiscal crisis in the U.S. and the weak

manufacturing data this week, there is certainly some negativity

there," said Ben le Brun, market analyst at OptionsXpress in

Sydney.

Front month Brent futures traded 16 cents higher at

$110 at 0250 GMT, after losing nearly 1 percent in the previous

session.

Prices could hover above support at $109.44 before dropping

to $108.55, according to Reuters analyst Wang Tao. U.S. crude

added 24 cents to $88.74.

Still, political and civil unrest in Egypt and Syria and an

ongoing dispute between Iran and the United States threaten to

disrupt exports from the Middle East, triggering worries about

supply.

"Anything to do with the Middle East will underpin prices,

but the big concern at the moment is the continuing tensions

with Iran," added le Brun.

U.S. IN FOCUS

The biggest worry across asset classes remains the U.S.

fiscal negotiations and the current debate on taxes for the

wealthy, proposed by President Obama and opposed by Republicans.

The overall political picture on Tuesday reflected a

relatively solid front of Democrats versus an increasingly shaky

group of Republicans.

Any signs of uncertainty on the fiscal talks' outcome will

increase market jitters as nearly $600 billion of spending cuts

and higher taxes will come into effect in 2013 if a deal isn't

reached by the end of the year.

The absence of a fiscal deal could cut global oil demand by

about 0.6 million barrels per day, JP Morgan analysts estimated

in a report earlier in the week.

The talks have switched investor focus from Europe where an

agreement between euro zone finance ministers and the

International Monetary Fund to help Greece temporarily mitigated

worries there.

But with more of the region's countries on the brink of a

crisis, the eurozone's troubles are far from over and the

recurring worries will continues to drag down fuel demand.

Weak data from top consumers the United States and China

added to investor worries.

Growth in China's services sector slowed in November as

lacklustre growth in new orders and a surge of recent hires

reduced work backlogs, a survey of purchasing managers in the

services industry showed.

U.S. manufacturing unexpectedly contracted in November to

its lowest level in more than three years, according to a report

on Monday.

MIDDLE EAST TENSIONS SUPPORT

Tensions in the Middle East continued to support prices.

Iran, which is engaged in a dispute with the U.S. over its

nuclear program, said on Tuesday it had captured a U.S.

intelligence drone in its airspace in the last few days, but the

White House said there was no evidence to support the assertion.

A political crisis in Egypt and a worsening civil conflict

in Syria added to concerns that oil supplies from the region may

be disrupted.

An inventory report showing a steep drop in crude stockpiles

last week added to the support. Total U.S. stockpiles dropped by

2.2 million barrels in the week to Nov. 30, beating analyst

forecasts for a 300,000 barrel drawdown, data from the American

Petroleum Institute showed on Tuesday.

The Energy Information Administration (EIA) will release its

weekly data later on Wednesday.

(Editing by Ed Davies)

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