UPDATE 6-Brent crude slips, economic concerns weigh

* Eyes on bigger U.S. budget battles

* Upbeat China data lifts demand outlook, limits losses

* US crude stockpiles last week forecast lower -poll

* Coming up: U.S. weekly API oil stocks; 2130 GMT

(Updates throughout, changes byline and dateline pvs London)

NEW YORK, Jan 3 (Reuters) - Oil slipped on Thursday as traders booked profits after prices hit 11-week highs as looming U.S. budget battles tempered optimism about the deal to avert the automatic tax hikes and spending cuts that threatened the economy.

Focus shifted from the fiscal cliff to the upcoming wrangling U.S. President Barack Obama and Republicans in Congress will face over the budget, which could put further stress on the world's biggest economy.

The oil markets have been closely watching the U.S. budget crisis, as well as ongoing problems in the euro zone, for signs it could further dampen struggling fuel demand.

Brent crude jumped to over $112 a barrel for the first time since mid-October on Wednesday after the fiscal cliff deal was reached, but players said the market was awaiting strong signs that the economy was improving to extend the rally longer term.

"The uncertainty because of the budget cuts and the ceiling debate seem to have tempered the markets enthusiasm that things were getting better and that's why things have stalled," sa id Gen e McGillian, a nalyst, Tradition Energy in Stamford, Connecticut.

"I think we probably have more to go on the rally but a significant rally from here has to come from signs the economy is really improving."

U.S. economic data released Wednesday was mixed, with U.S. private-sector employment data coming in stronger than expected. A separate report showed the number of Americans filing new claims for unemployment benefits rose last wee, and traders will now be closely watching out for payrolls data coming out on Friday.

Data also showed the service sector of No.2 oil consumer China expanded in December, fueling hopes that the world's second-largest economy and top energy consumer is recovering.

Brent crude fell 18 cents to $112.29 a barrel by 12:58 p.m. (1758 GMT) after rising more than 1 percent on Wednesday to settle at their highest level since October. U.S. crude rose 3 cents to $93.15 a barrel.

Brent's premium to U.S. crude narrowed, in part due to news a major expansion of the Seaway pipeline -- aimed at easing the bottleneck at the Cushing, Oklahoma oil hub which has depressed U.S. prices -- should be at full rates by the end of next week.

The spread between Brent and West Texas Intermediate <CL-LCO1=R> narrowed to about $19 a barrel on Thursday, down from 2012 highs of about $26.

U.S. commercial crude oil stockpiles are likely to have fallen last week due to lower imports as refiners drew down inventories for year-end tax purposes, a preliminary Reuters poll of eight analysts showed.

The American Petroleum Institute (API) will release its report on Thursday, delayed due to the New Year day's holiday on Tuesday. The U.S. government's Energy Information Administration (EIA) will issue its data on Friday.

(Reporting by Matthew Robinson and Robert Gibbons in New York; Peg Mackey in London; Florence Tan in Singapore; Editing by Marguerita Choy)