(Reuters) - Brent crude oil rose above $108 on Friday after a Reuters report that China's central bank will create a new investment vehicle worth $300 billion, part of which would be focused on Europe. The report, which also boosted the euro, raised hopes that funds from the world's second-biggest and fastest growing major economy could be used to support European growth and soften the impact of the euro crisis. Markets had earlier fallen after a European Union summit left the bloc divided over moves to build a fiscal union and tighten integration in an attempt to rescue the euro. Thorbjoern Bak Jensen, analyst at Global Risk Management, said the exclusive Reuters report from Beijing had helped reverse negative sentiment after the division at the summit. "It gives some support to risk sentiment," Jensen said. A source with knowledge of the matter told Reuters the Chinese investment vehicle would operate two funds, one targeting the United States and the other focused on Europe. It would make aggressive overseas investments. ICE Brent futures rose 80 cents to $108.91 per barrel by 1155 GMT, reversing an earlier $1 loss to a low of $107.11. U.S. crude futures rose 60 cents to $98.94, after losing more than $2 on Thursday after the ECB news. The Chinese report helped boost the European single currency, pushing it to an intra-day high of $1.3433 after early losses on news of the outcome of the EU crisis summit. Twenty-three of the 27 EU leaders at the summit in Brussels agreed more integration with stricter budget rules for the euro zone, but Britain rejected proposed amendments to the EU treaty after failing to secure concessions for itself. The split deepened worries that policy makers would fail to tackle the euro zone debt crisis, leading to slower economic activity and lower demand for oil. "The market had expected a bit more from the summit and is disappointed that the ECB isn't doing more," said Cartsen Fritsch, commodities analyst at Commerzbank in Frankfurt. IRAN China's annual inflation rate fell in November to 4.2 percent, the lowest in more than a year, fuelling expectations of further monetary policy easing as economic activity at the world's no.2 oil consumer slows. The inflation rate is now close to the government's official target of 4 percent and has dropped rapidly since hitting a three-year high of 6.5 percent in July. Chinese industrial output rose 12.4 percent from a year earlier, slowing from October's 13.2 percent, data showed on Friday. "The sharp contraction in the real economy, the external uncertainties lingering on, plus the easing inflationary pressure all point to a larger scope for further policy easing. So the basic tone of the macro policy will lean towards the pro-growth side," said Nie Wen, analyst at Hwabao Trust in Shanghai. German exports posted their biggest fall in six months in October in a sign Europe's largest economy weakened into the fourth quarter as the euro zone debt crisis hammered key markets. The risk of a supply disruption from Iran has risen with European Union leaders expected to call for more sanctions against the Islamic Republic at a summit Friday in Brussels. However, they are not likely to make an explicit call yet for an embargo on Iranian crude oil, amid concerns that the OPEC producer has worked to design a nuclear weapon. The senior geopolitical risk analyst at Barclays Capital has said the chance of a military strike on Iran has roughly tripled in the past year. New York-based analyst Helina Croft said even increasing sanctions was raising the risk of an oil price spike. Croft said the risk of either an Israeli or U.S. strike on Iranian nuclear facilities remained low but had risen to between 25 and 30 percent from 5-10 percent last year. (Additional reporting by Francis Kan in Singapore; Editing by Alison Birrane)

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