Oil slips after initial rally, holds above $ 55

LONDON, Jan 29 (Reuters) Oil gave up early gains to trade 0.3 percent down on Monday, a shade above a barrel, and analysts cautioned price rallies would remain fragile.

Oil has tumbled as much as 19 percent since Jan. 1, to a low of .90, because of a mild start to the northern winter and a shift in investor positions in oil and other commodities.

The market has recovered over the last 10 days, helped by a drop in temperatures in top consumer the United States.

Weekend headlines about Iran's nuclear plans reminded investors the world's fourth biggest oil producer is still at odds with the United Nations, and oil climbed in early trade on Monday.

''Gains should be viewed with extreme scepticism and caution.

Support is expected between 53.75/25, closes through which would warn the downtrend is resuming,'' Barclays Capital analysts said.

U.S. crude was down 19 cents to .23 by 1114 GMT. London Brent crude was down 17 cents to .12.

''We are seeing a stronger demand outlook for heating oil products in the U.S.,'' said Dariusz Kowalczyk, chief investment strategist at SJ Seymour Group. ''News out of Iran.. has also spooked the market a bit.'' An Iranian parliamentarian said on Saturday the country had begun installing 3,000 new atomic centrifuges for uranium enrichment -- a process that can be used to make atomic bombs.

But the statement was rejected by an Iranian nuclear official.

The conflicting signals raised concerns that tensions between the U.S and Iran could worsen, leading to a replay of a price increase that took oil to a record .40 in July.

Analysts said rising violence in Nigeria heightened worries of further supply cuts in the country, where a wave of attacks has forced the closure of a fifth of oil production capacity.

Militants from the Movement for the Emancipation of the Niger Delta torched a police headquarters in Port Harcourt in the oil-producing Niger Delta on Sunday.

The Organization of the Petroleum Exporting Countries has said it would wait to assess the impact of existing supply cuts before calling for further reductions.

The group agreed in October to curb output by 1.2 million barrels per day (bpd) or 4 percent from Nov. 1, and another 500,000 bpd from Feb. 1 this year after a sharp slide in prices.

REUTERS PV HS1732