* Weak economic data heightens stimulus hopes * Iran tensions escalate after missile test * U.S. crude stocks fall more sharply than expected * Trading thin with U.S. closed for Independence Day (Adds quote, updates prices, tweaks lead) By Simon Falush LONDON, July 4 (Reuters) - Crude oil prices fell on Wednesday, after a sharp gain the previous day, as investors returned their focus to the grim global economic backdrop, though expectations of fresh stimulus measures limited losses. Trading was thin, with U.S. markets closed for the Independence Day holiday and ahead of meetings of policymakers at the European Central Bank and the Bank of England scheduled for Thursday. Brent crude oil was 90 cents lower at $99.80 per barrel by 1218 GMT, after jumping more than 3 percent in the previous session on short-covering before the U.S. holiday. Brent crude had reached as low as $88.49 on June 22. U.S. crude fell 68 cents to $86.98 after settling on Tuesday at its highest close since May 30. "After a strong rally yesterday, with the U.S. liquidity out of the market, the market is moving to a level that is easier to defend," Filip Petersson, an analyst at SEB in Stockholm, said. "I expect it to be a bit bearish, but a 1 percent fall after several days with several percent rises is not a big move." Oil prices were supported by expectations for more monetary stimulus and by rising tension over Iran's nuclear programme, which fed worries about disruptions to supply. The European Central Bank is expected to cut its main refinancing rate to a record low below 1 percent at its policy meeting on Thursday. Investors are also hoping for quantitative easing (QE) from the U.S. Federal Reserve, which could become more likely if there is weak non-farm payrolls data on Friday. "If the data at the end of the week disappoint, it could increase the likelihood of QE, which would weaken the dollar and support growth," said Gareth Lewis-Davies at BNP Paribas. Iran has threatened to destroy U.S. military bases across the Middle East and target Israel within minutes of being attacked, Iranian media reported on Wednesday, as Revolutionary Guards extended test-firing of ballistic missiles into a third day. DEMAND OUTLOOK While the weak data was seen as a potential prompt for stimulus policies, it was also seen as limiting the prospects for demand growth for commodities such as oil. Deutsche Bank and Societe Generale have lowered their 2013 Brent price outlooks on expectations of weak demand due to the gloomy economic climate. However U.S. crude oil stocks fell more than expected last week, according to data released by industry group the American Petroleum Institute late on Tuesday, helping to support prices. Crude inventories tumbled by 3 million barrels in the week to June 29, well above the 1.9 million barrel drawdown forecast by analysts, with Gulf Coast stocks off nearly 4.3 million barrels. Wednesday's U.S. holiday pushes back the U.S. Energy Information Administrations inventory data to 11 a.m. EDT (1500 GMT) on Thursday. Also supporting prices, Norwegian trade unions put off a decision to escalate a strike by offshore oil and gas workers until Friday, extending their battle with employers to nearly two weeks. Norway labour union Industri Energi said it did not expect easy talks with employers. Meditation over an oil strike was to resume later on Wednesday. (Additional reporting by Ramya Venugopal and Jessica Jaganathan in Singapore; Editing by Jane Baird)

Source