* Libyan export fall raises supply fears
* Market waits for clues on policy from Fed meeting
* U.S. crude stocks seen up 3.2 mln bbls
TOKYO, Oct 29 (Reuters) - Brent crude futures edged lower toward $109 a barrel on Tuesday ahead of a Federal Reserve policy-setting meeting but they kept most of the previous day's gains after reports of a sharp drop in Libyan oil exports, which rekindled worries over supply.
Libya's crude oil exports have dropped to less than 10 percent of capacity, or 90,000 barrels per day, due to the worst disruption in its oil industry since a 2011 civil war.
London Brent crude for December delivery was trading 48 cents lower at $109.13 a barrel at 0623 GMT after settling up $2.68 on Monday. U.S. crude for December delivery was down 22 cents at $98.46 a barrel.
Libya's prime minister said exports from the eastern port of Hariga with a capacity of 110,000 bpd would resume after one week following a two-month blockade due to strikes and protests, but there were few projections for further restarts.
The Libyan news, combined with talk of unstable production in Iraq last week, helped push up oil prices yesterday, said Osamu Fujisawa, a Japanese-based independent oil economist.
"Despite the gains, oil prices are expected to meet with continued upside resistance because demand is not growing as fast as supplies through next year as IEA projections show," he said.
Oil prices could well fall in spite of winter demand in the northern hemisphere, with Brent set to fall towards $103 a barrel, he added.
Masaki Suematsu, energy team sales manager at Newedge Japan, said: "Basically, I am not that bullish. I think $105 is the level we could see on the downside."
A bomb explosion over the weekend close to a pipeline carrying crude from a major oilfield in Iraq also provided support to the market, although oil exports were not affected.
"Two of the most volatile oil producers, Libya and Iraq, experienced serious unrest over the weekend, and we think there is a high risk that the security problems could grow more acute and affect output in both countries," Barclays analysts said in a note.
Reuters market analyst Wang Tao said Brent was expected to retrace to $108.46 per barrel as it faced resistance at $109.81.
The market is waiting for comment from the Federal Reserve's policy-making meeting, which starts later in the day, after data on Monday showed U.S. manufacturing output barely rose in September and that contracts to buy previously owned homes recorded their largest drop in nearly 3-1/2 years.
The Fed is widely expected to maintain its current level of economic stimulus as it waits to see more evidence of how Washington's recent budget battle hurt the U.S. economy.
U.S. oil inventories probably rose by 3.2 million barrels last week, while distillates and gasoline fell 1 million barrels each, a preliminary Reuters poll showed ahead of weekly data.
Investors will also keep an eye on a series of technical and diplomatic meetings on Iran's nuclear programme that could pave the way for an easing of sanctions on Iranian crude exports.
Iran is planning to offer international companies more lucrative contracts to attract at least $100 billion worth of investment in its oilfields over the next three years, the Financial Times reported on Monday.