Oil price falls below $111 on China rebound

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Oil prices slipped below $111 a barrel on Friday but retained the bulk of the previous session's gains, supported by stronger economic growth in China and ongoing supply concerns after UN talks with Iran failed and Algeria's hostage crisis continued.

Brent crude briefly edged higher after the UN said that nuclear inspectors had failed to reach a deal with Iran to unblock an investigation into suspected bomb research on Friday after two days of intensive discussions.

Fourth-quarter growth in the world's second-largest economy was a little stronger than expected, at 7.9 percent versus analyst forecasts of 7.8 percent, while a sharp drop in US unemployment claims and a surge in residential construction helped boost investor confidence.

Front-month Brent was down 28 cents at $110.782 barrel at 1.34pm UAe time, retaining the bulk of Thursday's $1.42 a barrel gain.

US oil was down 20 cents at $95.65 a barrel, also holding on to the bulk of the previous session's $1.25 gains.

"The China data was largely in line with expectations and that's reflected in the oil markets. At the moment, it's steady as it goes," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

"The broad demand outlook is for moderate growth so markets should be generally preparing to improve, although for Brent, the upside may be limited by adequate supply."

Brent is headed for its third weekly gain in four, while US crude is poised for its sixth weekly gain.

China's fourth-quarter bounce from growth of 7.4 percent in the third quarter -- its lowest since the depths of the global financial crisis -- left full year growth at 7.8 percent, making 2012 the weakest year of economic expansion since 1999.

Other data released alongside GDP showed industrial output grew 10.3 percent in December from a year ago, versus expectations of 10.1 percent.

Its implied oil demand rose to a record high in December, although its annual increase of 4.5 percent in 2012 was lower than 6.3 percent in 2012. Still, recent data suggests that China has bounced out of the slump seen earlier in the year, which may prop up demand from the world's second-biggest oil consumer.

The data shows that "China entered 2013 with healthy growth momentum," RBS analysts said in a report.

"While we do expect some moderation of sequential quarter-on-quarter growth in the first-half, in our view, China is now on track for around 8.4 percent GDP growth this year, after 7.8 percent in 2012."

China's numbers followed data from the United States that gave investors confidence the world's largest oil consumer is weathering an uncertain fiscal environment surprisingly well.

The number of Americans filing new claims for unemployment aid hit a five-year low last week and residential construction surged in December, the latest signs that the US economic recovery remains on track.

The optimism over the China and US data, as well as supply concerns after a seizure by Islamic militants of a gas facility in OPEC producer Algeria, helped to boost oil prices.

Algerian forces stormed a desert gas complex to free hundreds of hostages but 30, including several Westerners, were killed in the assault, along with at least 11 of their Islamist captors, an Algerian security source told Reuters.

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