UPDATE 2-Brent holds above $109 after China data; Libya weighs
* China August flash HSBC PMI hit four-month high
* Libya's Marsa al Brega port to handle oil cargoes next few days
* Investors eye Sept tapering by U.S. Federal Reserve
* Coming up: Euro zone Markit Manufacturing Flash PMI; 0758 GMT
(Adds quotes, updates prices)
SINGAPORE, Aug 22 (Reuters) - Brent crude held above $109 a barrel on Thursday as upbeat data from China kindled hopes for better demand from the world's second largest oil consumer, but signs that OPEC producer Libya may resume exports dragged on prices.
Activity in China's manufacturing sector hit a four-month high in August as new orders rebounded, a preliminary survey showed. This added to promising reports for July, raising hopes the world's No.2 economy may be stabilising after slumping for more than two years.
"The Chinese economy is not as good as it used to be, but we should not be too pessimistic because it is still maintaining growth at around 7.5 percent," Yusuke Seta, a commodity sales manager at Newedge Japan said. "Brent is seeing some correction, but prices are still caught in the range of $108.20 and $111."
Brent crude edged down 16 cents to $109.65 a barrel by 0708 GMT. U.S. crude was up 3 cents at $103.88, after dropping by as much as 32 cents earlier in the session.
Signs that companies were diverting oil to the depleted Cushing, Oklahoma storage hub for the first time in 12 months however continued to cap U.S. oil price gains. The Brent-WTI spread <CL-LCO1=R> widened to more than $6 for the first time since June on Wednesday.
The U.S. benchmark will also be pressured if an expected roll back in the U.S. Federal Reserve's stimulus next month comes to pass, ANZ analyst Natalie Rampono said.
"We're expecting a 70 percent chance for the Fed to start tapering in September," Rampono said. "That should have a negative impact, in particular, on U.S. crude."
WANING SUPPORT FROM GEOPOLITICAL WORRIES
Oil's support from geopolitical tensions in the Middle East and Africa has eased just a touch, Rampono pointed out.
Libya's Marsa al Brega port, which local sources said reopened on Tuesday, may handle oil cargoes in the next few days, a shipping source close to the trade said.
But the worst disruption to Libya's oil sector since the civil war of 2011 continued, with the largest terminals, Es Sider and Ras Lanuf, still blocked by protesters for nearly four weeks.
A political crisis in Egypt has also stoked supply worries as the country is home to the Suez Canal and the Sumed pipeline, which together carry around 4.5 million barrels per day of oil between the Red Sea and the Mediterranean.
The Egyptian army has said it will guarantee the safety of the canal and pipeline but any disruption could have a major impact on oil prices.
For now, prices are not expected to see much of an upside from the geopolitical worries, Rampono said.
"Markets have factored in production cuts from Libya and there's no issue of exports disruption at the Suez Canal."
(Editing by Himani Sarkar)