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UPDATE 3-Brent eases towards $108, weak data stokes demand worries

Thursday, 23 Jan 2014 | 5:10 AM ET

* China Jan flash PMI falls to 49.6, first contraction in 6 months

* U.S. crude oil inventories rise 4.9 mln bbls -API

* Coming Up: EIA weekly crude stocks data; 1600 GMT

(Updates previous SINGAPORE)

LONDON, Jan 23 (Reuters) - Brent crude edged towards $108 a barrel on Thursday as weak data from the world's top two oil consumers revived worries over the outlook for demand.

Activity in China's factory sector contracted in January for the first time in six months as new orders declined, confirming that a mild slowdown at the end of 2013 has continued into the new year.

In the United States, industry data showed a sharp buildup in crude stocks despite a bitterly cold winter.

Brent, which slipped as low as $107.85, was off 9 cents at $108.18 a barrel by 0957 GMT. It settled up $1.54 on Wednesday at its highest level since Dec. 31.

U.S. oil rose 10 cents to $96.83, after settling $1.76 higher at $96.73.

"We still believe that supplies are adequate and demand growth is still likely to lag output additions through 2013-14," said VTB Capital oil strategist Andrey Kryuchenkov.

"This does not change the fact prices are probably going to be generally lower in 2014 than in 2013 - especially if the MENA (Middle East/North Africa) supply side risk subsides."

Investors are now awaiting official data on oil stockpiles from the U.S. Energy Information Administration (EIA) to gauge the outlook for demand in the United States.

U.S. crude inventories rose by 4.9 million barrels in the week to Jan. 17, to 355.7 million, compared with analysts' expectations for an increase of 600,000 barrels, as refineries cut output, the American Petroleum Institute (API) said.

Distillate stockpiles, which include diesel and heating oil, fell by 2.3 million barrels, compared with expectations for a 900,000 million-barrel drop, the data showed.

Traders also watched for any signs of an eventual increase in Iranian oil exports as its relationship with the West shifts.

Tehran will have a new, attractive investment model for oil contracts by September as it is keen to win back Western business, Iran's president and oil minister told oil executives in Davos, Switzerland.

Three oil executives who were at the meeting and spoke with Reuters on condition of anonymity said Iranian President Hassan Rouhani and Oil Minister Bijan Zanganeh said the country's new administration was keen to open up to Western investments and technology as part of its drive towards rapprochement with the West.

"It was an impressive presentation," one of the oil executives said.

Markets also monitored the progress in talks to end the crisis in Syria. Syria's government and opposition, meeting for the first time, vented their mutual hostility on Wednesday but a U.N. mediator said the enemies may be ready to discuss prisoner swaps, local ceasefires and humanitarian aid.

(Additional reporting by Manash Goswami in Singapore; Editing by William Hardy)