Oil falls on global growth concerns, debt fears

NEW YORK (Reuters) - Oil prices fell on Monday in volatile trading on fears that persistent debt problems in Europe and the United States and governments' inability to tackle them will stunt global economic growth and curb demand for petroleum.

A U.S. congressional committee charged with attempting to cut at least $1.2 trillion from the U.S. deficit over the next decade was expected to announce it had been unable to reach an agreement.

The euro zone's debt crisis continued to raise the region's borrowing costs as investors remained jittery even after an election victory in Spain for conservatives committed to tougher austerity.

Spanish, Italian, French and Belgian government bond yields rose as investors fled to safe-haven German Bunds, while European shares .FTEU3 fell sharply after Moody's warned that France's credit rating faced new dangers. .EU

"Concerns about U.S. debt have added to risk aversion," said Eugen Weinberg, head of global commodities research at Commerzbank in Frankfurt. "The euro zone crisis is ongoing with no sign of being resolved and equities are down very sharply."

Rising tensions over Iran's nuclear program and unrest in Egypt and Syria sparked concern about supply from the region and helped limit oil losses.

ICE Brent January crude fell 68 cents to settle at $106.88 a barrel. Monday's $105.65 low was just above front-month Brent's 300-day moving average of $105.61.

U.S. January crude fell 75 cents to settle at $96.92 a barrel, having traded as low as $95.24, just below the 200-day moving average of $95.34.

U.S. crude moved into contango -- a condition where front-month prices are less than those for the nearby month -- through April.

Brent's premium to U.S. crude edged up to $9.96, based on settlements, in choppy trading after ending on Friday at $9.89.

"We look for this newly developed contango to spread further down the curve," Jim Ritterbusch, president at Ritterbusch & Associates said in a note.

Trading volumes for crude remained tepid with Brent and U.S. crude both around 30 percent below their 30-day averages.

U.S. gasoline futures settled higher in choppy trading. Heating oil futures ended more than 1 percent lower, weighed down by mild weather.

U.S. heating demand this week is expected to be 27.5 percent below normal, the National Weather Service said.

U.S. crude oil and distillate stocks likely fell last week while gasoline stockpiles rose, according to a Reuters survey of analysts on Monday.

The U.S. dollar rose sharply against higher yielding currencies as deteriorating fiscal outlooks in the United States and Europe prompted investors to cut risk exposure. .DXY

U.S. stocks fell a fourth straight session on the concerns about heavy debt loads, both domestic and in Europe. .N

Also contributing to the cautious economic outlook, the Xinhua news agency quoted Chinese Vice-Premier Wang Qishan as saying a long-term global recession is certain to happen and China must focus on domestic problems.

TENSIONS WITH IRAN

Britain on Monday ordered its financial institutions to halt all business with Iranian counterparts, including the central bank. The United States is also expected to tighten sanctions.

France called for new sanctions on an "unprecedented scale," proposing purchases of Iranian oil be halted and central bank assets frozen.

In comments broadcast on Sunday, Rostam Qasemi, Iran's energy minister and current OPEC president, told Al Jazeera television Iran could use oil as a political tool in the event of future conflict over its nuclear program.

(Additional reporting by Gene Ramos in New York, Christopher Johnson in London, Jane Lee in Kuala Lumpur and Francis Kan in Singapore; Editing by Dale Hudson and Jim Marshall)