UPDATE 9-Oil prices down, pare losses on late-day short covering
* Weak China manufacturing data adds to economic worries
* Iran to meet 6 world powers this month for nuclear talks
* Coming up: API data at 4:30 p.m. EDT, EIA data Wednesday
(New throughout, adds new quote. Updates to settlement prices.)
NEW YORK, Oct 1 (Reuters) - Oil prices on both sides of the Atlantic ended lower on Tuesday but pared losses sharply late in the session as traders bought contracts to cover short positions while U.S. politicians continued battling over how to overcome a budget impasse that shut down Federal agencies and programs.
The U.S. government began a partial shutdown on Tuesday for the first time in 17 years, which is largely expected to crimp demand in the world's largest oil consumer as nearly one million workers go without pay.
Traders who rode prices down began exiting positions around 2 p.m. EDT, once U.S. oil prices failed to break the previous session low of $101.05, said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.
"For momentum traders playing the short side, when it stops going down, we get out," he said.
While analysts predicted a swift end to the government shutdown, commodity markets were less certain. Gold lost more than three percent and copper fell to its lowest in a week, while U.S. equities were higher.
The White House scoffed as the Republican-led U.S. House of Representatives offered legislation that would fund parks, veterans and the District of Columbia.
"The market continues to retreat until it figures out what this shutdown means," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.
Brent crude settled 43 cents lower at $107.94 after trading as low as $106.81. U.S. crude oil ended the day 29 cents lower at $102.04 a barrel, after dropping to a low of $101.06.
U.S. gasoline futures dropped to their lowest level since November 2012 at $2.5723 a gallon and settled at $2.6106.
Oil prices have faced downward pressure in the past month as supply has improved, with Libya increasing 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.
U.S. manufacturing data was strong and could help put a floor under prices going forward, though it is a backward looking indicator, said Michael Lynch, an oil analyst and president of consultancy Strategic Energy & Economic Research Inc in Winchester, Massachusetts.
"What's happening is still the shutdown and you'll have something like one million people without paychecks," he said.
Signs of a thaw in relations between the United States and Iran also weighed on oil prices after U.S. President Barack Obama and new Iranian President Hassan Rouhani spoke by telephone last week.
The world's six major powers will meet Iranian officials in Geneva on Oct. 15-16 to discuss Iran's nuclear program.
Expectations that crude oil inventories rose last week also put downward pressure on the market, McGillian of Tradition Energy said.
The U.S. Energy Information Administration is expected to show that U.S. commercial crude oil inventories rose by 2.3 million barrels and that gasoline stockpiles fell, according to a preliminary Reuters poll.
The agency said it has enough resources to operate until around Oct. 11 even with the government shutdown.
The American Petroleum Institute is set to release oil inventory data at 4:30 p.m. on Tuesday.
(Additional reporting by Peg Mackey in London and Florence Tan in Singapore; Editing by William Hardy, Alden Bentley, Bob Burgdorfer and Nick Zieminski)