By Julia Payne LONDON, Aug 14 (Reuters) - Oil prices steadied near $113 a barrel on Tuesday, close to their highest level in three months, underpinned by expectations of U.S. and Chinese economic stimulus and worries over supply constraints in the North Sea. Strong data on U.S. retail sales, which rose in July for the first time in four months as demand rose broadly for everything from cars to electronics, buoyed most financial markets. It was the biggest gain since February and well above analysts' expectations. Brent crude was down 30 cents to $113.30 by 1450 GMT after closing up 65 cents on Monday at its highest settlement since May 3. U.S. crude firmed by 53 cents to $93.26 a barrel, after hitting a high of $93.92. "WTI is rising with the better U.S. retail data. Trading volumes are thin so takes little to move the market," said Michael Hewson, market analyst at CMC Markets. Market players were hoping U.S. Federal Reserve Chairman Ben Bernanke would announce a third round of quantitative easing this month and were looking at forthcoming data for further indications as to its probability. "Investors are building in expectations of a QE3 ahead of the Jackson Hole speech by Bernanke," said Harry Tchilinguirian, an oil analyst at BNP Paribas in London. Quantitative easing would mean a fresh injection of dollars into the U.S. economy, weakening the dollar and probably pushing up oil prices. China is also expected to respond further to its slowing growth rate after two rounds of interest rate cuts. Stimulus could come in the form of more infrastructure projects, which would entail an intensive use of base metals and energy and also support oil prices. "On the demand side you can be optimistic. China can maintain some oil demand growth with its infrastructure projects," Tchilinguirian said. MIDDLE EAST Investors also were keeping a watch over tensions in the Middle East that could affect supplies. The effects of a European Iranian oil embargo, which took effect on July 1, have continued to ripple through the physical market, and production from countries including Yemen, Syria and Sudan is still out of the picture. Adding to that tightening market was the prospect of record-low North Sea production in September. "The Brent field problems, reduced stocks in the U.S., hurricane season, Iran tensions and threats from Israel to crush their nuclear ambitions, unrest in Syria, are all adding to the melting pot," said Robert Montefusco, an oil broker at Sucden Financial. Analysts at ANZ said in a daily note that Brent might stabilise in a range of $110-115, but an increase in tension in the Middle East or a steeper decline in North Sea output could bring "the $120 technical target into play". A fall in North Sea production of about 17 percent in September from August, mainly due to a drop in Forties crude output, supported the European benchmark and resulted in steep backwardation between the front months. The projected output fall in the North Sea has also contributed to the widening WTI-Brent spread, which has reached a four-month high over $20 a barrel. That balanced against the narrowing effect of the Seaway pipeline, which in mid-May began pumping crude stocks from Cushing, Oklahoma to the U.S. Gulf coast. CL-LCO1=R Data on U.S. crude stocks due later in the day from industry group the American Petroleum Institute (API) is expected to provide pointers on demand growth in the world's largest oil consumer. U.S. crude stockpiles were forecast to have fallen by 1.6 million barrels in the week to Aug. 10, declining for a third straight week on lower imports, a preliminary Reuters poll of seven analysts showed on Monday. The API data will be followed by more closely watched numbers from the U.S. Energy Department on Wednesday. (Additional reporting by Manash Goswani in Singapore; editing by Christopher Johnson)

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