* Brent, WTI set for weekly gain
* Fed taper affirms improved U.S. economic outlook, fuel demand
* Libya crude exports fall to 110,000 bpd
* Coming up: U.S. final Q3 GDP data; 1330 GMT
(Updates prices, paragraphs 3-7, adds U.S. GDP preview, changes dateline, previously SINGAPORE) LONDON, Dec 20 (Reuters) - Brent crude oil held above $110 a barrel on Friday, heading for a weekly gain, boosted by a positive outlook for fuel demand in the United States, the world's largest oil consumer, and reduced Libyan supply. Oil gained this week after U.S. crude stockpiles fell, while the U.S. Federal Reserve's decision to start winding down its bond buying programme supported the view that the world's biggest economy is on the path to recovery. U.S. crude futures headed for a rise of more than 2 percent this week, while Brent crude was set for a 1 percent weekly gain. Brent's premium to U.S. oil was also on track to narrow for a third straight week. On the day, Brent crude rose 9 cents to $110.38 a barrel by 0913 GMT, while U.S. oil was at $98.72 a barrel, down 32 cents. "The rise is related to the strength in the U.S. economy, strong housing numbers this week and the Fed communication saying 'We now can start tapering', which is a sign of the U.S. recovery showing strength," said Bjarne Schieldrop, chief commodity analyst at SEB Bank. In Libya, crude exports have dropped to 110,000 barrels per day (bpd), from over 1 million bpd in July. The OPEC producer is stepping up fuel imports as a mix of militias, tribesmen and civil servants demanding political rights or a greater share of Libya's oil wealth have occupied several oilfields and ports.
"Libya probably will increase production in 2014, but stable production at 1.5 million bpd is not my expectation," said SEB's Schieldrop.
U.S. DEMAND Prices were also supported by data from the American Petroleum Institute on Thursday which showed demand for petroleum products in the United States rose to the highest November level in six years. A larger than expected drawdown in crude stockpiles last week also underpinned prices.
Pressure on prices came from U.S. data on Thursday that showed new filings for unemployment benefits unexpectedly rose. Data also showed U.S. home resales hit a near one-year low in November, though housing market fundamentals remained solid.
The market will look to the final reading of third quarter U.S. GDP growth, due to be released at 1330 GMT, for a further indication of the strength of the U.S. economy. A Reuters poll predicated the 3.6 percent annual growth figure to be unchanged.
Traders were also watching the progress of talks between Iran and six world powers as they work out how to put into practice a landmark deal obliging Tehran to curb its nuclear programme in return for some relief from economic sanctions.
An easing of sanctions on the OPEC producer will lead to a rise in oil exports which could weigh on prices.
(Additional reporting by Manash Goswami and Florence Tan in Singapore, editing by William Hardy)