UPDATE 7-U.S. oil rises, gains capped by China, U.S. data

* North Sea buzzard field restarted, Libya loading resumes

* Cushing stocks expected to fall over 1 mln bbls -sources

* Coming up: API oil inventory data at 4:30 p.m.

(Rewrites top, adds analyst quote, updates prices)

NEW YORK, Feb 4 (Reuters) - U.S. crude oil rose by more than $1 per barrel on Tuesday, reversing the previous session's losses, as traders expected data to show oil inventories were beginning to drain in earnest from the benchmark's delivery point at Cushing, Oklahoma, after the start-up of TransCanada's Keystone south pipeline.

Gains were capped later in the afternoon as traders took some profit. The double whammy of poor factory data in China and the United State, the world's two largest oil consumers, continued to weigh on the market.

"I think whenever you get into the high $90's you're going to see some resistance at that level," said Brad Schaeffer, president at Occam Commodity Brokers in Red Bank, New Jersey.

U.S. crude oil futures were up 87 cents to $97.30 per barrel by 1:08 p.m. EST (1808 GMT), bouncing after their largest daily percentage loss in nearly a month on Monday as they tumbled with U.S. equities. The contract traded at a session high of $97.71 earlier in the day.

Crude may have also drawn some support from continued cold, stormy weather that drove U.S. natural gas futures prices up 5 percent on Tuesday. A stronger U.S. equities market also provided support.

Oil stocks at Cushing were expected to have dropped by more than 1 million barrels for the first time in five months, Data released later on Tuesday will show how much oil has drained from the storage hub.

Traders have anticipated declining stocks at Cushing, indicating demand for that oil, since the southern leg of TransCanada's Keystone pipeline went into service late last month.

Those expectations caused the closely-watched and heavily-traded spread between Brent and West Texas Intermediate to further narrow Tuesday. The spread was last trading at $8.54 per barrel, after narrowing to $8.06 on Monday, its smallest since Oct. 18. It has narrowed by some $7 since mid-January.

Brent fell and was last trading 21 cents lower at $105.83 a barrel.

Brent's losses were capped by tighter supply in the North Sea after an output glitch at the 200,000 barrels-per-day Buzzard, the largest field that contributes to Forties. The field has restarted and will return to normal levels in days, its operator said.

Bad weather also supported prices as it reduced output from Libya on Monday but the National Oil Corporation said loading had restarted and production would return to normal on Tuesday.

Traders also awaited the release of oil inventory data from the American Petroleum Institute on Tuesday at 4:30 p.m. EST and from the U.S. Energy Information Administration at 10:30 a.m. EST on Wednesday.

U.S. commercial crude oil and gasoline stockpiles were forecast to have risen last week, a preliminary Reuters poll of analysts showed on Monday.

The market anticipated a large draw in distillates after frigid weather in the last week drove up U.S. heating oil demand.

"TransCanada's Keystone pipeline has drained at Cushing, but the heating oil is going to be the leader tomorrow when it comes to the data due to the weather," said Bill Baruch, senior market strategist with iitrader.com in Chicago.

(Additional reporting by Lin Noueihed in London and Florence Tan in Singapore; Editing by Jason Neely, Keiron Henderson and Marguerita Choy)