UPDATE 5-Brent falls below $108 as U.S. government begins shutdown
* U.S. shutdown starts after budget talks fail
* Weak China manufacturing data adds to economic worries
* Iran to meet P5+1 in mid-October for nuclear talks
(Adds quote, updates prices)
LONDON, Oct 1 (Reuters) - Brent oil slid below $108 a barrel on Tuesday on worries that a shutdown of the U.S. government will crimp demand, while easing tensions in U.S.-Iran nuclear talks boosted prospects for an increase in supply.
The U.S. government began a partial shutdown on Tuesday for the first time in 17 years, potentially putting up to 1 million workers on unpaid leave, closing national parks and stalling medical research projects.
But analysts expect that a swift resolution will limit the downside in oil prices.
"The U.S. government shutdown has affected all markets, including crude, but it's a slow burner in terms of overall impact," said Simon Wardell of IHS.
"U.S.-Iranian nuclear negotiations are helping to keep prices under control. If progress is made, we'll continue to see downward pressure on crude."
Brent crude fell 65 cents to $107.72 a barrel by 1300 GMT. U.S. crude slid 56 cents to $101.77.
Oil has come under downward pressure in the past month as supply has improved, with Libya ramping up output and tensions easing over Syria.
In China, weaker-than-expected growth in the manufacturing sector in September added to concerns that a nascent recovery in the world's second-largest economy might be foundering.
Signs of a thaw in relations between the United States and Iran also weighed on oil prices.
U.S. President Barack Obama and new Iranian President Hassan Rouhani spoke by telephone last week in the highest level contact between the countries in more than three decades, fuelling hopes for a resolution of Iran's decade-old nuclear standoff with the West.
The world's six major powers will meet Iranian officials in Geneva on Oct. 15-16 to discuss Iran's nuclear programme.
Investors are also looking ahead to data on U.S. oil inventories on Wednesday. The U.S. Energy Information Administration said it has enough resources to operate to around Oct. 11 in the event of a government shutdown.
U.S. commercial crude oil inventories were forecast to have risen last week and gasoline stockpiles to have fallen, a preliminary Reuters poll of five analysts showed.
(Additional reporting by Peg Mackey in London and Florence Tan in Singapore; editing Jane Baird and James Jukwey)