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UPDATE 1-Brent edges over $111, but weak China data drags

Florence Tan
Thursday, 2 Jan 2014 | 1:21 AM ET

* China factory activity slows in Dec - govt, HSBC

* U.S. crude inventories fell by 5.7 mln bbls last week - API

* South Sudan President declares state of emergency in two states

* Coming up: U.S. Dec ISM Manufacturing PMI; 1500 GMT

(Adds quotes, updates prices)

SINGAPORE, Jan 2 (Reuters) - Brent crude rose past $111 a barrel on Thursday on a drop in U.S. inventories and output cuts in Libya and South Sudan, but slowing economic expansion in China may hold back further gains.

Growth in factory activity in second largest oil consumer China slowed in late 2013, according to purchasing managers' indexes published by the government and HSBC, weighed down by shrinking export orders.

China's factory activity expanded at its slowest in three months in December, according to the HSBC survey, consistent with views that the economy's growth rate has moderated.

"The Chinese PMI data were not exactly bullish," IHS oil consultant Victor Shum said. "The only thing supporting oil prices is probably the U.S. inventories."

February Brent crude edged up 38 cents from Tuesday to $111.18 a barrel by 0618 GMT. U.S. crude for February delivery was at $98.76, up 35 cents.

Markets were shut on Wednesday for the New Year.

Data from the American Petroleum Institute showed on Tuesday a drop of 5.7 million barrels in U.S. crude stockpiles, nearly double the 3-million-barrel draw expected by analysts surveyed by Reuters.

The U.S. Energy Information Administration (EIA) will release its data on Jan. 3 due to the holiday.

Lower U.S. inventories helped buoy the West Texas Intermediate (WTI) oil price in 2013. The average for the past year was $98.05 a barrel, up 4.2 percent from $94.14 in 2012.

The average Brent price for 2013 was $108.70 in 2013, down 2.7 percent from $111.68 in 2012 in a well-supplied market despite disruptions in the Middle East, Africa and North Sea.

Production in Libya, Iran, Iraq and the United States will be closely watched this year, IHS' Shum said, in addition to any signs of further stimulus tapering by the U.S. Federal Reserve.

In Libya, oil output is still less than 250,000 barrels per day (bpd), down from 1.4 million bpd in July, as ports in the eastern part of the country remain shut.

South Sudanese President Salva Kiir declared a state of emergency in two states on Wednesday as his negotiators prepared for peace talks with rebels to end more than two weeks of violence that has pushed the country towards civil war.

Iran and six world powers will implement an agreement in late January obliging Tehran to suspend its most sensitive nuclear work, an Iranian official was quoted as saying on Tuesday.

That raises the prospect of a fairly rapid increase in Iranian crude exports over 2014, according to some analysts.

"It may be six months or more before all of the Iranian oil returns to the market - and it will depend on Iran's political compliance," Jason Schenker, president of consultancy Prestige Economics said in a note.

"When that happens, however, Brent crude oil prices could fall swiftly."

(Reporting by Florence Tan; Editing by Tom Hogue)

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