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UPDATE 2-Brent climbs above $108, positive China survey offsets US stocks build

Jessica Jaganathan
Thursday, 24 Oct 2013 | 3:20 AM ET

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* China HSBC flash PMI hits 7-mth high in Oct

* U.S. EIA reports big rise in U.S. crude stocks

* Brent/WTI spread narrows after widening to $13 in previous session

SINGAPORE, Oct 24 (Reuters) - Brent crude futures climbed above $108 a barrel on Thursday after positive economic news from China, the world's second-largest oil consumer, helped offset another rise in U.S. crude stockpiles that had depressed prices overnight.

Strong new orders in October drove the biggest expansion in China's manufacturing sector in seven months, according to a preliminary Markit/HSBC survey of purchasing managers, providing further evidence the economy was stabilising.

But U.S. crude oil inventories rose by 5.2 million barrels last week, the fifth-largest build of the year, with stocks at the Cushing hub rising for the second week in a row, showing there was ample supply in the world's largest oil consumer.

Brent crude oil futures had gained 37 cents to $108.16 a barrel by 0709 GMT.

U.S. crude oil futures gained 78 cents to $97.64 after ending at $96.86 a barrel in the previous session, the lowest settlement price since July 1.

"Brent will likely respond in a stronger way to the PMI data as we have seen signs of stabilisation in China's growth ... but we expect China to maintain a cautious monetary policy in the coming months," said Vyanne Lai, an economist at National Australia Bank.

"So unless there's some impetus from geopolitical risk in the Middle East, we don't see Brent rising too strongly in the coming months."

She added that recent high-level talks between Iran and the United States, lingering uncertainties over the U.S. budget and rising oil production in the United States and Canada pointed to weaker oil fundamentals and would limit any gain in prices.

The positive news from the Markit/HSBC Purchasing Managers Index (PMI), the earliest reading of China's monthly economic performance, follows a pick-up in economic growth in the third quarter.

But many economists see Chinese growth slowing as global demand remains soft and Beijing moves to restructure the economy towards one driven more by consumer demand than investment and credit.

Chinese money market rates have hit three-month highs as regulators show signs of concern that loose liquidity might be fuelling another round of risky credit growth.

U.S. CRUDE STOCKS BUILD

Total U.S. crude oil stockpiles have risen by 22 million barrels over the past four weeks, the biggest four-week build since April 2012 and the second largest since February 2009, according to data from the U.S. Energy Information Administration (EIA).

The Brent/WTI spread narrowed to around $10.50 after hitting $13 a barrel in the previous session, the widest since April.

Market watchers said the earlier move was overdone and the spread between the two oil benchmarks would probably narrow further as crude stocks drop back again and U.S. crude prices rise.

"With refinery maintenance winding down and crude runs expected to pick up again, we expect the trend to reverse next month. While a boost in runs would contribute to driving down crude stocks, we also see U.S. refiners taking advantage of the current discounted crude prices and swiftly increasing utilisation rates," JBC Energy analysts said in a note.

"Thus, we would not be surprised to see run rates reaching close to 90 percent towards the beginning of winter, similar to what was witnessed last year."