UPDATE 2-Brent rises, above $109, as Chinese GDP offsets US oil ...

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* China's Sep implied oil demand down 1.8 pct on yr to 9.61 mln bpd

* Brent may retest support at $108.68 -technicals (Recasts, updates prices)

By Manash Goswami

SINGAPORE, Oct 18 (Reuters) - Brent futures edged up on Friday, holding above $109 a barrel after data showing China's economy grew in the third quarter at the fastest pace this year, which relieved some worries about demand in the global economy.

However, gains were limited after a build-up of crude stocks in the United States, which had pushed oil prices down sharply overnight.

Brent crude had gained 10 cents to $109.21 a barrel as of 0643 GMT but the contract is still poised to lose 1.9 percent on the week, snapping two weeks of gains. U.S. oil gained 18 cents to $100.87.

The Chinese data underpinned a better tone in financial markets, a day after U.S. lawmakers sealed an eleventh-hour deal to end a government shutdown and, temporarily at least, remove the threat of a debt default.

"The Chinese government will meet their target growth rate of 7.5 percent and that will support oil, going forward," said Tetsu Emori, a commodity fund manager at Astmax Investments in Tokyo.

"Overall sentiment is weak because of the U.S. debt issue. Without a permanent solution, it becomes difficult to decide whether to take on more risk or not."

The overnight falls were caused by data from the American Petroleum Institute showing crude inventories at the Cushing, Oklahoma, delivery point for the U.S. oil futures contract rose last week for the first time since early July. That raised questions about demand in the United States.

Emori expects crude to stay in a tight range until there is more clarity on the outlook for U.S. demand. U.S. oil may slip to $96-$97, and while the probability is low, it may dip to $92 if that level is broken, he said, putting the low for Brent at about $100 a barrel.

DOLLAR EFFECT

Oil was also supported by a weak dollar, which was near an eight-month low against a basket of currencies on Friday as traders focused on the economic impact of the acrimonious showdown in Washington that dragged the U.S. to the brink of default. A weak dollar makes it cheaper for importing countries to buy oil priced in the U.S. currency.

Implied oil demand in China, the world's second-biggest oil consumer, posted its first yearly decline in 17 months in September as refiners cut crude runs to perform maintenance.

But real demand may have been stronger than the implied figure, which ignores changes in fuel stocks.

"Implied oil demand fell last month, but if you include stockpile changes, real oil demand could have risen 3 to 4 percent in September," said a Beijing-based oil analyst with investment bank China International Capital Corp (CICC).

"The difference is that oil companies restocked fuel last September, but destocked this September as the government urged them to produce cleaner fuels."

Tension between Western powers and Iran over its disputed nuclear programme could ease, given progress in talks this week, although it could be some time before sanctions against Tehran are lifted and more of its crude flows into the market.

"Talks have progressed, but it is too early to say that we may start to see some easing of U.S. sanctions," Emori said.

Brent is expected to retest support at $108.68 and a break below that will lead to a further drop into a range of $107.71-$108.03, while a bearish target of $98.15 has resumed for U.S. oil, according to Reuters technical analyst Wang Tao. (Editing by Alan Raybould)

Energy

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