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UPDATE 5-Brent edges up near $109, Fed on track to trim stimulus

* U.S. crude suported by expectation of lower fuel stocks

* Yellen says Fed on track to keep trimming stimulus

* Coming up: API weekly U.S. inventory report, 2130 GMT

(Adds Yellen comments, analyst quote, updates prices)

LONDON, Feb 11 (Reuters) - Brent oil held near $109 a barrel on Tuesday and U.S. crude pared gains as investors digested Federal Reserve Chair Janet Yellen's comments that the U.S. central bank was on track to keep reducing its policy stimulus.

In her first public comments as Fed chief, Fed Chairwoman Janet Yellen also said recent volatility in global financial markets does "not pose a substantial risk to the U.S. economic outlook."

Brent crude was up 25 cents at $108.88 a barrel at 1506 GMT, after settling 94 cents lower. U.S. crude traded down 2 cents at $100.04, having closed above $100 on Monday for the first time this year.

A string of disappointing U.S. data had prompted speculation that the Fed might hold off on further reduction of stimulus, which has supported the prices of oil and other commodities.

"I think people expected a little too much," said Andrey Kryuchenkov, analyst at VTB Capital in London. "In the past hour, oil prices have come off, in line with other commodities."

Other analysts also expected oil prices to move lower.

"From a technical point of view, sustaining the move past $100 for WTI is going to be difficult," said Harry Tchilinguirian of BNP Paribas, who had expected the Fed to "stay the course" on its tapering programme.

The dollar fell to its lowest in almost two weeks, although it rose after Yellen's remarks.

U.S. crude was still close to a six-week high, supported by expectations of a drop in distillate inventories last week due to freezing weather across the country.

Distillate stocks, including heating oil and diesel fuel, are expected to drop by 2.3 million barrels in the week to Feb. 7, analysts said in a Reuters survey before weekly inventory reports from the American Petroleum Institute and the Energy Information Administration.

U.S. crude oil inventories, however, are expected to rise by 3 million barrels. The API releases its data at 2130 GMT, while the EIA report is out on Wednesday.

Brent's gains were capped by expectations of a further increase in Libyan output. The North African nation's current production is around 600,000 barrels per day (bpd), up from its average rate in January.

(Reporting by Jacob Gronholt-Pedersen and Alex Lawler; editing by William Hardy)