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UPDATE 7-Oil prices inch up on Iran tensions and OPEC cuts

Laila Kearney

* Brent, WTI set for biggest weekly drop in 5 weeks

* Losses checked by OPEC+ output cut extension (New throughout, updates prices, market activity, comments)

NEW YORK, July 5 (Reuters) - Oil prices climbed on Friday, supported by tensions over Iran and a decision by OPEC and its allies to extend an output supply cut deal until next year, but mixed economic data limited the rally.

Brent was up $1.08, or 1.7%, to $64.38 a barrel by 2:02 p.m. EDT (1802 GMT). U.S. West Texas Intermediate (WTI) gained 15 cents to $57.49 a barrel. The U.S. market was closed on Thursday for a national holiday, and WTI trade volumes remained light on Friday.

Both benchmarks were set to record weekly losses as concerns about a slowing global economy outweighed risks to supply.

"We've got mixed data weak manufacturing data from around the globe, but then we have a strong job numbers in the U.S.," said Phil Flynn, an analyst at Price Futures Group in Chicago.

German industrial orders fell far more than expected in May, and the Economy Ministry said this sector of Europe's largest economy was likely to remain weak in coming months.

The U.S. Labor Department said nonfarm employers added 224,000 jobs last month, the most in five months, easing fears about weakening global demand for crude. However, new orders for U.S. factory goods fell for a second straight month in May, government data showed, stoking economic concerns.

The U.S. Energy Information Administration reported on Wednesday a weekly decline of 1.1 million barrels in crude stocks, smaller than the 5 million barrel draw reported by the American Petroleum Institute and less than analysts had forecast.

The Organization of the Petroleum Exporting Countries and other producers such as Russia, known as OPEC+, supported prices by extending their deal on supply cuts.

Tension in the Middle East also offered support, particularly to Brent. "Brent is pricing in more of the geopolitical risk than WTI," Flynn said.

Iran threatened on Friday to capture a British ship after British forces seized an Iranian tanker in Gibraltar over accusations the ship was violating EU sanctions on Syria.

"It is just another sign that the market sentiment is not strong enough to react to those headlines and events, which is quite unusual," Petromatrix oil analyst Olivier Jakob said.

A Reuters survey found OPEC oil output sank to a new five-year low in June, as a rise in Saudi supply did not offset losses in Iran and Venezuela due to U.S. sanctions and other outages elsewhere in the group. (Additional reporting by Shadia Nasralla and Bozorgmehr Sharafedin in London, Colin Packham in Sydney; Editing by Edmund Blair, Chris Reese and David Gregorio)