UPDATE 3-Oil recovers to above $110 after biggest fall in 5 weeks
* Brent crude oil rises after Monday's sharp drop
* WTI-Brent spread narrows as TransCanada fills pipeline
* U.S. crude inventories down 2.7 million barrels last week - poll
* Coming up: U.S. API weekly oil stocks at 2130 GMT
(Changes dateline from SINGAPORE, updates quotes, prices)
LONDON, Dec 10 (Reuters) - Brent crude oil rose above $110 a barrel on Tuesday, recouping some of the previous session's losses - the sharpest in over five weeks.
Brent for January was up 80 cents at $110.19 a barrel by 0952 GMT, having risen briefly by more than $1 to $110.45. This followed a 2 percent drop on Monday, its biggest daily loss since Nov. 1, when it fell 2.7 percent.
U.S. crude oil futures were up $1.08 at $98.42 a barrel after their first decline in seven sessions on Monday.
"It was a very steep fall yesterday, for one thing," said Christopher Bellew, broker at Jefferies Bache. "So the rise is a little bit of a reaction to that."
Underpinning Brent was persistently low output in Libya at 250,000 barrels per day (bpd), down from 1.4 million bpd in July.
Blockades of Libya's eastern terminals and intermittent disruptions in the west could cap output at 800,000 bpd in 2014, Adam Longson, a commodities strategist at Morgan Stanley, wrote in a note.
Prices also gained support from a weakening of the dollar against the euro, with the greenback hitting a six-week low against the single currency.
Implied Chinese oil demand in November rose 1.5 percent from October's 9.79 million bpd and was the highest level in five months. However, it fell 5.1 percent from a year earlier, according to Reuters calculations based on preliminary government data.
Iranian Foreign Minister Javad Zarif said any new sanctions from the U.S. Congress on Iran would end its nuclear deal with major powers, Time Magazine reported. The November deal had raised the prospect of more oil supply and deflated a risk premium in oil prices.
Brent's premium to U.S. crude <CL-LCO1=R> has narrowed about $7 in nearly two weeks as TransCanada Corp has begun filling a 700,000-bpd pipeline that will transport crude from Cushing, Oklahoma, to Gulf Coast refiners.
U.S. crude may strengthen further as U.S. commercial crude oil stocks are forecast to have fallen for a second week last week by 2.7 million barrels, a Reuters poll of analysts showed.
(Additional reporting by Florence Tan and Manash Goswami in SINGAPORE; Editing by Dale Hudson)