UPDATE 5-Brent slips below $111, dollar weighs

* Optimism about a resolution to debt crisis supports

* Stronger dollar weighing on prices

* Europe may implement new sanctions on Iran next week (Adds detail, updates prices)

By Jessica Donati

LONDON, Jan 20 (Reuters) - Brent crude slipped below $111 on Friday as a stronger dollar and uncertainty ahead of a possible debt deal in Greece balanced against supply concerns amid expectations Europe would place sanctions on Iranian crude next week.

Debt talks resuming in Greece on Friday were taken as a sign a long-awaited deal may be reached to prevent a default by Athens. Renewed optimism about the euro zone's future helped steady oil prices.

But analysts were measured in their hopes for a speedy resolution and expected the market to remain rangebound until clearer indications of progress emerged.

"The market is reacting to economic and geopolitical arenas, going up a few cents and then down," said Roy Jordan, a consultant at Facts Global Energy, cautioning that the outlook for Greece could change very quickly.

"Over the weekend it could look like Greece won't [resolve its debt problems] and the market will react to that."

Brent crude was down $1.16 to $110.39 a barrel at 1451 GMT. U.S. crude futures fell more sharply on Friday with the February crude contract set to expire at the end of the session, trading $2.123 lower at $98.27 a barrel .

The U.S. dollar was up 0.06 percent against a basket of currencies around the same time, further dampening oil prices on Friday.

"Although risk appetite appears favorable toward additional price gains, the market is still forced to grapple with the reality of deteriorating fundamentals," U.S. oil analyst Jim Ritterbusch said in a note to clients of brokers Jefferies Bache.

Uncertainty about demand in Europe also grew after troubled refiner Petroplus on Friday raised the possibility of a permanent shutdown of three of its five refineries.

The Swiss refiner put one plant on the market and said it would consider the future of two others in a European market awash with un-saleable plants.

The refineries have a combined throughput capacity of some 667,000 barrels per day.

Slowing Chinese growth also weighed on oil prices after a survey of purchasing managers showed China's factory activity likely fell for a third successive month in January.

IRAN

Oil investors remain worried about supply disruption from Iran, whose foreign minister warned Arab neighbours not to put themselves in a "dangerous position" by aligning themselves too closely with the United States.

U.S. officials have travelled to China, South Korea and Japan to persuade some of Iran's biggest customers in Asia to cut purchases.

Iran has made no move to shut the world's most important oil export route, which had a daily flow of almost 17 million barrels last year, but has threatened action if Europe implements new sanctions.

The European Union is likely to agree on an oil embargo against Iran on Monday, France's foreign minister said on Thursday.

Real cuts in Europe will take time, however.

Italian, Greek and Spanish companies have already said they plan to extend most of their oil supply deals with Iran and expect to win a sanctions reprieve to allow them to adjust.

"It will create a problem when sanctions come in, but there are going to be exceptions and there is not likely to be any real change for another six months," Jordan said.

And even if the West implements sanctions, it is unclear whether it will succeed in choking off a vital source of income for Iran.

China, the biggest buyer of Iranian crude, has stepped up opposition to an embargo in recent weeks. India, which relies on Iran for around 12 percent of its crude, has said it will continue to do business with the Islamic Republic.

Elsewhere, supply was also threatened in Sudan, where officials in South Sudan said oil production would shut within two weeks after Sudan said it had started seizing southern oil to compensate for what it said were unpaid transit fees. (Additional eporting by Manash Goswami; editing by Keiron Henderson and Jason Neely)