UPDATE 5-Oil up above $109 as more monetary stimulus seen

* Expectations of QE4 from U.S. Fed boosts risk assets

* IEA says oil supply ample given weak European demand

* OPEC expected to hold output limits steady

* Coming up: U.S. weekly oil inventories at 1530 GMT

(Updates prices, adds OPEC standoff)

LONDON, Dec 12 (Reuters) - Brent crude oil rose above $109 a barrel on Wednesday on expectations of a fourth round of monetary stimulus from the U.S. Federal Reserve, although concerns about oversupply and weak demand limited gains.

Brent crude futures were up $1.11 to $109.12 a barrel by 1258 GMT, rebounding from last week's dip. U.S. crude was up 72 cents to $86.51 a barrel.

Analysts said riskier assets such as oil were being boosted by market expectations that the U.S. Federal Reserve will unveil fresh stimulus measures later in the day.

But gains are being limited by expectations OPEC oil ministers meeting in Vienna on Wednesday will hold production limits steady despite forecasts for a fall in demand in the first half of 2013.

A new rivalry at the top of the OPEC oil group has emerged, pitting up-and-coming Iraq against undisputed cartel heavyweight Saudi Arabia.

Markets expect the Fed to expand its current asset purchase scheme, committing to buy $45 billion of U.S. debt, and extend its purchases of mortgage-backed debt, to help sustain the fragile U.S. economic recovery.

"The market has absolute confidence this will happen and it will be extremely disappointing if it doesn't come," said Filip Petersson, a commodity strategist at SEB in Stockholm. "It's risk on for this reason."

The expectation of fresh stimulus measures is weighing on the dollar, which has trended lower against a basket of currencies this week. It was down 0.11 percent on the day at 1145 GMT.

A weaker dollar makes commodities priced in dollars more affordable for holders of other currencies.

European shares and the euro, plus other commodities such as copper and gold, are also being underpinned by the stimulus hopes, reflecting the general improvement in market sentiment.

SLUGGISH DEMAND GROWTH

The picture was more bearish from a fundamental perspective, however, with the International Energy Agency (IEA) forecasting sluggish demand growth throughout 2013 and comfortable oil supply levels.

In its monthly report on Wednesday, the IEA forecast global oil demand growth for 2013 at 865,000 barrels per day, 110,000 bpd higher than in its previous report, taking consumption up to an average of 90.5 million bpd.

On the supply front, spectacular growth in U.S. production on the back of a boom in shale oil is seen as a key development in 2013.

Abundant supply was also a concern for some OPEC ministers at a meeting in Vienna, where Algeria's oil minister said OPEC was producing too much oil given weaker demand and high inventory levels.

OPEC's production declined in November closer to its oil output target of 30 million barrels per day (bpd), led by a cut in Saudi Arabian output.

Iran has said it would prefer a much lower 28 million bpd oil output target, but is happy to back an unchanged cartel target of 30 million bpd for now. But Iraq said it would never cut production and other countries should shoulder the burden of output cuts if needed.

Saudi Arabia increased supply earlier in the year to replace the 1 million-bpd drop caused by Western sanctions against Iran over its disputed nuclear programme.

But OPEC warned on Tuesday that world oil demand growth could underperform in the first half of 2013 due to economic weakness.

Taking this into account, SEB's Petersson said OPEC output had to drop or there would be even more surplus oil in the market next year, and prices would come under pressure.

"It looks like there are enough supplies to cope with any pick up in demand," agreed Ole Hansen, senior commodity strategist at Saxo Bank.

"We will start the year on a relatively weak note in many regions so oil prices are likely to stay within the range they have established over the last few months."

The market is also looking to weekly U.S. crude oil and refined products inventory data, due from the Energy Information Administration later on Wednesday.

"There's a lot of focus on U.S. production which continues to surprise," said Hansen. "Last week we had a big spike in gasoline stocks and there have also been builds in distillates."

The U.S. winter is forecast to be one of the warmest on record, which has put heating oil and natural gas prices under downward pressure over the last few weeks.

A Reuters poll found analysts expect U.S. crude oil stocks to have fallen over the week amid high refinery demand, while gasoline inventories are expected to show a rise.

Hansen believes the market will remain rangebound for the time being, saying prices have found support at $107 a barrel, encouraging day-traders to re-enter the market.

"That has created a base. If we can get a foothold at $108.40 it could try to make a pop to the upside, but I think it will run out of steam between $109 and $110," he said.

(Additional reporting by Florence Tan in Singapore; editing by Alison Birrane and James Jukwey)