UPDATE 2-Brent steadies above $107; US, Europe fiscal woes weigh

* Tensions in Iran, Syria escalate

* Coming up: OPEC monthly report for October (Updates prices)

By Ramya Venugopal

SINGAPORE, Nov 9 (Reuters) - Brent crude held steady above $107 per barrel on Friday as worries about the U.S. fiscal health and its impact on oil demand growth, already dented by a weak global economy, capped price gains.

The United States is at risk of tipping into recession if it fails to find a compromise to cut its deficit before nearly $600 billion worth of spending cuts and tax increases kick in early 2013. Those worries have weighed across financial markets and led to oil swinging in about a $7 range this week - its widest since late September.

Front-month Brent slipped to as low as $106.77 but recovered slightly to trade up 1 cent at $107.26 by 1021 GMT. It is poised to gain 1.5 percent this week. U.S. crude fell 9 cents to $85 per barrel, after hitting a low of $84.81.

"One of the things on investors' minds is the White House and Congress reaching a deal on cutting the U.S. deficit," said Victor Shum, managing director at IHS Purvin and Gertz in Singapore. "Fundamentals are loose and there is a lot of downward pressure on oil at this point because the demand outlook is weak."

Another issue investors are worried about is how the United States will tackle the issue of the debt ceiling, which needs to be raised to avoid a government shutdown.

"Financial markets are finding it difficult to adopt a 'business as usual approach' in the wake of the U.S. election, with Wall Street fixated by fiscal cliff ramifications," Tim Waterer, a senior trader at CMC Markets, wrote in a note.

Across the Atlantic, the European Central Bank Chairman Mario Draghi said the bank was done helping the near-bankrupt Greece with its problems, showing the region's worsening crisis is far from being contained.

SUPPORTING PRICES

However, oil prices were supported by data from the world's second-largest oil consumer China that showed industrial output and retail sales for October slightly exceeded expectations.

The data offered further evidence that a cyclical recovery gained strength last month after the world's second largest economy suffered the slowest period of growth since early 2009 in the third quarter.

"We are seeing oil seesaw today because of the Chinese data," Shum said. "That is offering some support to the market."

The weak global economic outlook will keep Brent's upside capped at about $110 for the rest of the year and U.S. oil at $85, Shum said.

He expects prices to trade within the current range, unless supply disruption worries from the Middle East resurface.

Tension between Iran and the West worsened after the Pentagon said on Thursday that Iranian warplanes fired at an unarmed U.S. drone in international airspace last week but did not hit the aircraft.

"Politics is going to take centre stage as far as commodity markets are concerned," said Natalie Rampono, a commodity strategist at ANZ. "At the same time, Syria and Iran will provide a little bit of support, so we expect choppy and sideways trading next week."

Oil investors are worried about the region plunging into a crisis as the United States and Europe slap tough sanctions on Iran to abandon a controversial nuclear programme.

In Syria, rebels are fighting a 19-month battle against government forces, and skirmishes along the country's borders are escalating tensions with its neighbours, especially Turkey. (Editing by Himani Sarkar)