* China Dec PMI firms, points to gradual economic recovery
* U.S. jobless claims fell to near 4-yr low; retail sales rebounds in Nov
* BP in talks to cut output target at Iraq's giant Rumalia field
By Florence Tan
SINGAPORE, Dec 14 (Reuters) - Brent crude rose above $108 a barrel on Friday on a brighter economic outlook for China, the world's second largest oil consumer, but worries about the economic impact of a possible U.S. fiscal crisis capped price gains.
Growth in China's vast manufacturing sector picked up in December, adding to other data that pointed to a gradual economic recovery that could boost fuel demand. Employment in the United States and retail sales also improved, indicating that its economic recovery may also be picking up.
Brent crude is set to eke out its first weekly gain in three weeks. The January contract, which expires later on Friday, rose 37 cents to $108.28 a barrel by 0322 GMT. U.S. crude for January delivery was up 53 cents to $86.42.
"We're seeing positive PMI, industrial data and they are all pointing to the direction of an economic recovery," said Sijin Cheng, a commodities analyst at Barclays Capital.
"The underlying demand is going to improve gradually."
The HSBC flash purchasing managers' index for December rose to 50.9, a 14-month high. Data released earlier this week showed that China's November crude imports matched the third highest on record as new refining units started operations.
Chinese officials meeting this weekend are expected to maintain next year the 2012 GDP growth target of 7.5 percent.
In the United States, stalled talks in Washington to avert the "fiscal cliff" of steep tax increases and spending cuts overshadowed improvements in jobs data and retail sales.
Frustration mounted over the recent lack of progress in negotiations between the Democrats and the Republicans as the year-end deadline loomed.
"There's just more headline policy risk for the time being," Cheng said, adding that this would create volatility in oil prices.
On crude supply, the Organization of the Petroleum Exporting Countries (OPEC) agreed on Wednesday to maintain its oil output target of 30 million barrels per day (bpd), a production level the group exceeded in November by 800,000 bpd.
OPEC is relaxed about the prospect of rising inventories in the first half of next year, the group's secretary general said on Thursday, so long as oil prices avoid extreme moves from their current acceptable level.
Iraq has said other OPEC producers should shoulder the burden of output cuts in the event a reduction in supply is required.
But the second largest producer after Saudi Arabia is falling behind production targets as logistical bottlenecks and weak infrastructure hampered investors' ability to ramp up output.
Oil major BP is close to reaching a deal with Iraq to cut the final production target for the supergiant Rumaila oilfield to between 1.8 million and 2.2 million bpd, down from 2.85 million bpd agreed in 2009.
Editing by Miral Fahmy