Brent crude futures rose above $118 on Friday, as Europe's sweeping new action on the debt crisis and signs of progress on a US deficit reduction deal offset weak economic data from the world's second largest oil consumer, China.

The International Energy Agency's decision to not release more oil from emergency reserves also supported prices.

Brent for September rose 49 cents to $118.00 a barrel by 0542 GMT, after reaching a high of $118.17 earlier.  US crude was up 49 cents at $99.62 a barrel, headed for a 2 percent rise this week, its fourth straight weekly gain.

An emergency summit of leaders of the 17-nation euro zone pledged on Thursday to conduct a second bailout of Greece with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

"Sentiment is positive today because of the news out of Europe. The euro zone leaders managed to keep expectations low before the summit, the announcement of package gave the market a boost," said Chen Xin Yi, a commodities analyst with Barclays Capital.     

The news of the euro zone rescue package lifted Asian stocks and the euro on Friday, while demand for safe-haven assets weakened. Gold fell to around $1,590 an ounce, about $20 below a record high of near $1,610 set on Tuesday.

Oil prices dipped on Thursday after data showed China's manufacturing contracting for the first time in a year in July, as monetary tightening and sluggish global demand weighed on the economy, according to HSBC flash PMI.

Commodity markets are focused on the economy of China as a major source of future demand growth. "We expect a slowdown in China's demand growth, but actual apparent consumption is still expected to remain high with the latest June data release indicating apparent consumption still at a high level of 9 million barrels per day ," said Chen.

China's apparent oil demand gained only 1 percent from a year earlier to 8.99 million barrels per day (bpd) in June, the slowest growth in more than two years, Reuters calculations from official data showed.

According to technical charts, Brent oil is biased to rise to $120.82 a barrel while US crude has an upside target of $101.53 a barrel, said Reuters market analyst Wang Tao. -Reuters