UPDATE 8-Brent oil dips as weak US data cools rise on China data
* U.S. manufacturing contracts, pulls oil prices off highs
* U.S. fiscal cliff uncertainty also limits oil prices
* China manufacturing data provided early lift to oil prices
* Middle East tensions continue to be supportive to oil
* Coming up: API oil data 4:30 p.m. EST Tuesday
(Recasts with updated prices, market activity; changes byline and dateline, pvs LONDON) NEW YORK, Dec 3 (Reuters) - Brent oil prices turned lower in choppy trading on Monday as weak U.S. manufacturing data pulled crude futures back after supportive Chinese economic data and Middle East tensions had sparked a rally. U.S. manufacturing unexpectedly contracted in November, falling to its lowest level in over three years, according to an industry report from the Institute for Supply Management (ISM) released on Monday. "The ISM data took away the momentum, but crude hasn't lost that much ground," said Phil Flynn, analyst at Price Futures Group in Chicago. The weak U.S. manufacturing data and the continuing uncertainty about negotiations on the U.S. budget helped push Brent lower, pulled U.S. crude well off its high and weighed on Wall Street equities prices. Brent's more pronounced retreat was attributed to some unwinding of the spread between Brent and its U.S. counterpart. Brent's premium to U.S. crude <CL-LCO1=R> fell below $22 a barrel on Monday. Oil had been lifted after readings from both official and private sector surveys of China's vast manufacturing sector showed activity picked up November, adding to evidence that economic growth in the No. 2 oil consuming country is reviving after seven quarters of slowing growth. Brent January crude fell 15 cents to $111.08 a barrel at 12:34 p.m. EST (1734 GMT), back below its 200-day moving average of $111.34 after reaching $112.33 in the session.
U.S. January crude, up a third straight session, rose 34 cents to $89.25 a barrel. Crude reached $90.33 before pulling back, having pushed above the Nov. 19 intraday peak of $89.80, a level being monitored by chart watchers, according to traders and brokers. Fuelling investor caution about demand for oil is the uncertainty about talks on mandated U.S. tax hikes and spending cuts investors fear may pull the world's biggest economy back into recession. But tensions in the Middle East continued to stoke fears about the potential for supply disruptions in the region and remained supportive to oil prices. The dollar index, measuring the U.S. currency against a basket of currencies, weakened and the dollar extended losses versus the yen and euro after the disappointing ISM data.
The euro and European shares received a lift from Spain's formal request for European funds to recapitalize Spain's ailing banking sector. A weaker dollar is usually supportive to dollar-denominated commodities like oil and copper.
CHINA GROWTH Monday's final reading of HSBC's China manufacturing Purchasing Managers' Survey (PMI) rose to 50.5 in November from 49.5 in October, the first time since October 2011 the headline number has topped the 50-point line that demarcates growth and contraction from the previous month.
The HSBC survey followed the release on Saturday of a survey from the National Bureau of Statistics showing the pace of growth in the manufacturing sector quickening. The official PMI rose to a seven-month high of 50.6 for November, from 50.2 in October. Investors will now await China's industrial output and trade data to be released later this month for further confirmation of revived growth.
(Additional reporting by Shadia Nasralla in London and Ramya Venugopal in Singapore;editing by Sofina Mirza-Reid)