By Ramya Venugopal
CHENNAI, India, May 21 (Reuters) - Brent crude futures steadied near a two-week high, holding around $105 per barrel on Tuesday, as fears over rising Middle East tension offset concern about moderating demand growth to lock prices in a tight range.
Reports of fresh skirmishes in Syria suggest the civil conflict is at this year's peak, triggering fears it may spread to neighbouring key oil producers, while a weakening dollar added to the support.
Bearing down on prices are concerns that data this week may show sluggish growth in major consuming economies, in addition to high inventory levels and expectations of higher supply.
'The conflict in Syria looks like it's getting serious and the dollar is heading lower, while continuing high inventories are putting downward pressure on prices,' said Victor Shum, Victor Shum, managing director of IHS Consulting in Singapore.
'Given the physical fundamentals, I expect prices to moderate from current levels, unless the situation in Syria flares up further.'
Front-month Brent futures rose 18 cents to $104.98 per barrel by 0230 GMT, after rising to as much as $105.31 in the previous session, the highest since May 7.
U.S. crude added 12 cents to $96.83 and may be supported by inventory data expected on Tuesday, which may show a drop in crude stockpiles, according to a Reuters poll.
About 30 Hezbollah fighters and 20 Syrian soldiers were killed in the fiercest fighting this year, suggesting greater intervention by the guerrilla group in Syria, which shares a border with key producer Iraq.
The dollar fell against a basket of currencies on Monday as traders pared back expectations Federal Reserve Chairman Ben Bernanke would hint at tapering U.S. bond purchases when he testified to the Congress on Wednesday.
Initial estimates of Purchasing Managers' Indexes (PMIs) for China, the euro zone and the United States, due on May 23 may not be enough to dispel fears of a sluggish global outlook, Reuters polls show.
Highlighting these concerns, UBS cut its forecast for economic growth in China, the world's biggest energy consumer, citing weak credit expansion and credit growth.
'While some of the weakness may be transitory, increasingly evidence suggests that growth will be weaker than we previously envisaged,' Tao Wang, UBS China economist, wrote in a report.
Tuesday's U.S. inventory data may offer support to oil prices if the numbers meet analyst expectations.
U.S. commercial crude oil stockpiles are likely to have fallen 400,000 barrels on higher refinery activity and lower imports, a preliminary Reuters poll of seven analysts showed. Crude inventory had reached a record high this month.
(Reporting by Ramya Venugopal; Editing by Clarence Fernandez) Keywords: MARKETS OIL/
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