* Brent, WTI set for second weekly gain in three * Fed taper affirms improved U.S. economic outlook, fuel demand * Libya crude exports fall to 110,000 bpd (Updates prices) By Florence Tan SINGAPORE, Dec 20 (Reuters) - Brent crude slipped to $110 a barrel on Friday, but was heading for its second weekly gain in three, buoyed by Libyan supply cuts and a rosy outlook for fuel demand in the United States, the world's largest oil consumer. Oil gained this week after U.S. crude stockpiles fell while the Federal Reserve's decision to start winding down its massive bond buying programme supported the view that the world's biggest economy is on the path to recovery. U.S. crude futures are heading for a rise of more than 2 percent this week while Brent could gain 1 percent. Brent crude had fallen 27 cents to $110.02 a barrel by 0718 GMT, while U.S. oil was at $98.77 a barrel, down 27 cents. "The Fed's moves yesterday are clearly an endorsement of growth in the U.S. economy and that's important for global energy demand," said Michael McCarthy, chief market strategist at CMC Markets in Sydney. Yet, the immediate pressure on prices is coming from U.S. data overnight that showed home resales hit a near one-year low and new filings for unemployment benefits unexpectedly rose. "The jump in initial jobless claim raised concerns on the actual recovery of the U.S. economy especially when tapering commences in January, which will affect the demand and outlook for crude oil," analysts at Phillip Futures said in a note. "Nonetheless, it is encouraging to observe that crude oil has been receptive towards the tapering news." Low trading volumes are keeping prices volatile, McCarthy said, although Brent and West Texas Intermediate (WTI) are likely to stay supported above key technical resistance levels of $110 and $98.50 a barrel, respectively. "With so many areas pointing in the same direction, that is upwards for oil prices, we'll continue to see good support over the short term for energy," McCarthy said, referring to recent improvements in economic data from the United States and Asia and a persistent cut in Libyan crude supply. RISING DEMAND In the United States, demand for petroleum products rose to the highest November level in six years, data from the American Petroleum Institute showed on Thursday. A larger than expected drawdown in crude stockpiles last week also underpinned prices. In Libya, crude exports have dropped to 110,000 barrels per day (bpd), from over 1 million bpd in July, and the OPEC producer is stepping up fuel imports as a mix of militias, tribesmen and civil servants demanding political rights or a greater share of Libya's oil wealth have occupied several oilfields and ports. "It appears that the central government might have lost control of some of the export terminals," McCarthy said, adding that the absence of Libyan oil supply was underpinning prices. Traders were also watching the progress of talks between Iran and six world powers as they work out how to put into practice a landmark deal obliging Tehran to curb its nuclear programme in return for some relief from economic sanctions. The easing of sanctions on the OPEC producer will lead to a rise in oil exports which could depress prices.

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