Brent rises above $111/bbl as supply trumps economy

* Greece says on track for debt swap deal this week

* U.S. eyes more sanctions on Iran

* South Sudan keeps oil output shut

By Florence Tan

SINGAPORE, Jan 31 (Reuters) - Brent crude inched above $111 a barrel on Tuesday, on track for its first rise in two months, as concerns over supply from Iran and South Sudan trumped worries about a global economic slowdown that could hit oil demand.

Investors are worried about oil supplies from OPEC's second-largest producer, Iran, as the United States is eyeing more sanctions, on top of a European embargo on Iranian oil, as the West steps up pressure on Tehran to stop its nuclear programme.

South Sudan's decision to keep its production shut in a transit fee dispute with former civil war foe Sudan added to the supply worries.

ICE Brent crude was up 67 cents at $111.42 a barrel by 0414 GMT, on course to rise 3.5 percent in January. U.S. March crude was at $99.37 a barrel, up 59 cents.

"Iran will make sure we see more upside than downside," Jeremy Friesen, a commodity strategist at Societe Generale said, although strong downside forces from the deteriorating economy capped gains.

The opposing factors of supply concerns and economic worries could lead Brent to rise or fall $2-$3 a barrel in the next week, he said.

Prices also rose in part because the U.S. dollar weakened against the yen and euro after Greece raised hopes that it could reach a debt swap deal this week to avoid a default.

Dollar-denominated oil becomes cheaper to holders of other currencies when the greenback weakens.

The EU's embargo on Iranian oil exports will add upward pressure to oil prices, OPEC's secretary general told Reuters, even though there is no shortage of oil on the market.

Lawmakers on the U.S. Senate Banking Committee plan to vote on a new round of sanctions targeting Iran's energy sector. The package comes on the heels of new banking sanctions that the Obama administration is only beginning to implement as well as tough new embargos by European nations.

In Africa, South Sudan kept oil production shut even as Sudan released four tankers loaded with South Sudanese oil to try to defuse a row over export transit fees.

Saudi Arabia sought to reassure investors that it can cover any future world oil shortages thanks to massive investment, and its rising gas output will mean crude exports will not be affected by booming domestic energy demand, Oil Minister Ali al-Naimi said.

GLOBAL ECONOMY

The euro zone debt crisis has threatened to slow down growth in the United States and China, the world's top two oil consumers.

Europe moved a step closer to a fiscal union on Monday although differences over the limits of austerity and Greece's unfinished debt restructuring talks hampered efforts to convey a more optimistic message that Europe is getting on top of its debt crisis.

"I'm confident that the European Union is moving in the right direction," Friesen said. "But the way forward is murky and we're muddling through."

"It's hard to see oil rally unless the economy heals itself quickly."

U.S. consumer spending was flat in December, potentially signaling slower consumption early in 2012 while China's vast manufacturing sector may have shrunk in January.

Analysts are expecting a second straight weekly rise in U.S. crude oil inventories on more imports, a preliminary Reuters poll showed. (Reporting by Florence Tan; Editing by Sugita Katyal)