UPDATE 7-Brent crude up on debt limit proposal, supply worries
* U.S. House to take up debt ceiling bill
* Dollar strength, equities dip limit gains
* China's economic growth better in Q4
* Coming up: CFTC positions data 3:30 p.m. EST
(Rewrites throughout, updates prices and market activity)
NEW YORK, Jan 18 (Reuters) - Oil prices rose on Friday, recovering from an earlier dip after news that the U.S. House of Representatives will consider a bill to raise the debt ceiling enough to allow the country to pay its bills for another three months.
Gains were capped by a surprise drop in U.S. consumer sentiment to the lowest level in more than a year, with many consumers citing fallout from the ongoing fiscal wrangling in Washington. Still, Brent crude oil finished the week higher for the fifth time in six.
The International Energy Agency (IEA) said Friday that upward pressure on prices could continue as Chinese demand this year is forecast to be stronger than previously expected, while the Organization of the Petroleum Exporting Countries may lower supplies.
"All of a sudden, the market looks tighter than we thought," the IEA said in its monthly report. "Inventories are getting tighter."
Oil was further supported by this week's Islamic militant raid on a gas plant in OPEC-member Algeria, which has seen around 30 hostages killed, and by lack of progress from the latest round of talks between the U.N.'s nuclear agency and Iran.
Brent March crude rose 79 cents to close the week at$111.89 a barrel, having risen from around $107 a barrel in early December. The contract closed above a key technical indicator watched by traders, clearing the 100-day moving average at $110.96.
U.S. February crude rose 7 cents to $95.96 a barrel, and taking gains to the week to $2 a barrel. Thursday's session peak of $96.04 was the highest price since September. U.S. crude has risen for straight six weeks.
U.S. crude's discount to Brent narrowed to the lowest since July on Thursday, helped by the expansion of the Seaway Pipeline, but has since risen back to almost $16 a barrel as a heavy refinery maintenance program around Cushing, Oklahoma - delivery hub point of the U.S. crude contract - is expected to lower demand.
In Washington, Republican House Majority Leader Eric Cantor said that next week the legislature will authorize a three-month "temporary debt limit increase to give the Senate and House time to pass a budget."
The Treasury needs congressional authorization to raise the current $16.4 trillion limit on U.S. debt sometime between mid-February and early March.
"After feeling some pressure from the weak consumer sentiment data, crude popped back a bit on the possibility of movement on the debt ceiling," said Phil Flynn, analyst at Price Futures Group in Chicago.
U.S. stock markets were trading slightly off a five-year high having risen in each of the last three weeks.
A report on Friday showed China's economy grew at its slowest pace in 13 years in 2012, though a year-end surge from infrastructure spending and improved trade signalled more stable growth after a recent slowdown.
Data showing a recovery in exports, stronger than expected industrial output and retail sales, together with robust fixed asset investment, indicated that Beijing's pro-growth policy mix has gained traction, lending support to oil prices.
In Algeria, government forces stormed a desert gas complex to free hundreds of hostages but 30, including several Westerners, were killed in the assault along with at least 11 of their Islamist captors, an Algerian security source told Reuters.
The apparent ease with which the Islamic fighters swooped in from the dunes to take control of an important energy facility this week, which produces some 10 percent of Algeria's natural gas, has raised questions over security at energy installations across northern Africa.
Following the attack, Libya's oil protection force said it was beefing up security around its oil and gas installations in the western and southern areas bordering Algeria.
(Reporting by Robert Gibbons in New York, Jessica Donati in London and Manash Goswami and Ramya Venugopal in Singapore; Editing by Grant McCool and David Gregorio)