UPDATE 1-Brent below $108 ahead of US GDP data, set to fall for ...

* Hurricane Sandy threatens U.S. after slamming Cuba

* World's spare oil capacity grows as Iran sanctions bite

* Coming Up: U.S. GDP for third quarter; 1230 GMT (Updates prices)

By Manash Goswami

SINGAPORE, Oct 26 (Reuters) - Brent futures fell more than $1 on Friday to slip below $108 a barrel, as investors waited for key U.S. economic data to gauge the demand growth outlook for oil, with rising supplies weighing on prices.

The world's biggest economy is likely to have grown at an annual rate of 1.9 percent in the third quarter, a Reuters poll showed, but still well short of the pace economists say needed to ensure steady recovery. Brent has fallen more than 3 percent this month in part on investor reluctance to lock in fresh positions ahead of U.S. elections.

Brent crude had slipped as low as $107.40 a barrel and traded at $107.67 by 0648 GMT. The contract ended higher on Thursday, after seven straight sessions of declines that marked its longest losing streak since July 2010. U.S. oil slipped 76 cents to $85.29, after ending up 32 cents.

"It is difficult to lock in fresh positions," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investment. "Investors are awaiting election results and more data that supports a steady global economic recovery."

Since climbing out of the 2007 to 2009 recession, the U.S. economy has faced a series of headwinds from high gasoline prices to debt turmoil in Europe and, lately, fears of U.S. government austerity. It has struggled to exceed a 2 percent growth pace and remains about 4.5 million jobs short of where it stood when the downturn started.

"There is an element of investors staying on the sidelines ahead of key data in the way prices are moving today," said Ben Le Brun, a market analyst at OptionsXpress.

"U.S. GDP will certainly have an impact across risk assets, including oil, and a surprise to the downside would be very bearish for oil."

The European benchmark is set to fall 2.2 percent this week following last week's decline of nearly 4 percent. U.S. oil is on track to slide about 5 percent, its biggest such drop since the week of Sept. 23.

Oil prices have also been dragged lower by rising U.S. inventories, poor corporate earnings and Europe's worsening financial crisis.

Rising supplies from Iraq and Libya have helped offset declines in Iranian exports, which have slumped due to tight Western sanctions.

GOING SPARE

The world's spare oil production capacity outside Iran rose in the last two months to 2 million barrels per day, up from 1.8 million bpd in the previous two months, the Energy Information Administration (EIA) said in a report required by last year's Iran sanctions law.

"Commodity prices continue to be stifled by global demand concerns, with the U.S. corporate earnings season not exactly painting a picture of economic health for the coming year," Tim Waterer, sales trader at CMC Markets, said in a report.

Hurricane Sandy swelled into a major threat to much of the U.S. East Coast on Thursday after lashing Cuba with heavy rains and tree-toppling winds and swirling through the Bahamas, U.S. forecasters said.

They warned of flooding, heavy rains and high winds beginning late on Thursday in Florida. Sandy may force refineries in New Jersey and Pennsylvania to slow or shut some operations, hurting gasoline and heating oil on the east coast.

Additional support for oil also came from Labor Department data showing that initial claims for state unemployment benefits dropped 23,000 last week to a seasonally adjusted 369,000.

The four-week moving average for jobless claims rose 1,500 to 368,000. Economists generally think a reading below 400,000 points to an increase in employment, with hiring likely to have outpaced layoffs. (Reporting by Manash Goswami; Editing by Clarence Fernandez)