Brent crude steady above $109 as Mideast tensions escalate
* Israel hammers Hamas in Gaza offensive, operation may last days
* Asian stocks mostly fall, taking lead from drop in Wall Street
* Brent to rise more to $111.65 - technicals
* Coming Up: U.S. New York Fed manufacturing; 1330 GMT
By Manash Goswami
SINGAPORE, Nov 15 (Reuters) - Brent crude held steady above $109 a barrel on Thursday as Israeli strikes against the Gaza Strip renewed worries about supply disruption, while a weak global economic outlook kept gains in check.
Oil rose, diverging from most other riskier assets, as Israel launched a major offensive against Palestinian militants in Gaza and also announced there was more to come. But gains were capped as the United States and Europe grappled with their financial woes, pushing Asian shares and base metals lower.
Brent crude gained 14 cents to $109.75 a barrel by 0359 GMT after settling $1.35 higher in the previous session. U.S. oil edged up 2 cents to $86.34, after ending 94 cents up.
"The overall economy is weak, but prices are biased to rise because geopolitical risks are going up," said Tony Nunan, a risk manager at Mitsubishi Corp. "That's going to be the story for the rest of the year - a weak economic outlook, but higher prices because of supply worries."
Supply fears, coming as the oil market enters a peak seasonal demand period, and a weak consumption outlook will keep Brent swinging between $108 and $112 a barrel till the end of the year, Nunan said.
"The threat of escalating Middle East tensions boosted the geopolitical risk premium in the market, supporting both crude markets," analysts at ANZ said in a note.
"Given the contrasting influences of weak demand prospects versus potential supply disruption concerns we think Brent and WTI could trend sideways for the rest of the week in volatile trading, unless we see more attacks in the Middle East."
The market is also keeping an eye on the negotiations over the looming U.S. "fiscal cliff".
Investors are worried that a package of tax increases and spending cuts mandated to come into force next year if a deal is not agreed - the so-called "fiscal cliff" - will pitch the world's biggest economy and top oil consumer back into recession.
The U.S. benchmark may trade around $92 into the end of the year and Brent at $113, said Carl Larry at Atlas Commodities brokerage in Houston. Most support will come on hopes of a gradual global economic recovery, he said.
Commenting on the overnight Israeli offensive, he said the action has raised fears in the market, but "it is not enough to say we are headed back to $100."
According to 24-hour technical charts, Brent is expected to rise more to $111.65 per barrel, while a rebound target at $87.91 per barrel remains unchanged for U.S. oil, Reuters market analyst Wang Tao said.
Data due later in the day from the federal Energy Information Administration (EIA) on U.S. crude and product stockpiles will provide more direction to prices.
U.S. crude oil inventories rose last week, while fuel stockpiles on the East Coast dropped sharply as the region struggled to restore operations battered by Superstorm Sandy, data from the American Petroleum Institute showed.
Total U.S. crude oil stockpiles showed a build of 1.3 million barrels in the week to Nov. 9, short of forecasts for a 1.9 million barrel build, the API data showed. East Coast distillate stockpiles fell by more than 2 million barrels, while gasoline inventories declined by more than 1.2 million barrels. (Editing by Himani Sarkar)