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UPDATE 6-Oil falls as economic data dims demand outlook

* China, Europe services PMI disappoint

* Tensions in Middle East offer support

* Coming up: EIA petroleum status report; 1430 GMT

(Adds US data in paragraph 9, updates prices)

By Simon Falush

LONDON, Oct 3 (Reuters) - Crude oil prices fell sharply on Wednesday as weak economic data from Europe and China dimmed the outlook for demand, adding to concerns arising from Europe's festering debt crisis.

Brent November crude futures had fallen $2.11 to $109.46 a barrel by 1257 GMT.

U.S. November crude shed $1.34 to $90.55 a barrel.

China's official purchasing managers' index for the services sector fell to 53.7 in September from 56.3 in August as growth in the manufacturing industry stabilised at a slower pace.

In Europe, dwindling new orders and faster layoffs marked a worsening decline for euro zone companies last month, according to business surveys that dented optimism the economy would return to growth before 2013.

Wednesday's purchasing managers indexes (PMIs) suggested it was almost inevitable that the euro zone returned to recession in the third quarter.

Highlighting the impact of the faltering economy on oil consumption, retail sales in the euro zone barely rose in August as motorists cut back spending on fuel during the normally busy driving months of the European summer.

"There's little to be cheerful about. There's worry about whether Spain will ask for a bailout or not and there's major uncertainty around China," said Filip Petersson, analyst at SEB in Stockholm. "It's difficult to be bullish at the moment."

Also adding to the bearish tone, Brent crude ended Tuesday below two significant technical support levels on charts of price movements - the 50-day moving average at $112.06 and the 200-day moving average at $112.09 - making significant rebounds harder to achieve.

Losses were compounded as U.S. traders began their day, with stronger than forecast ADP national employment data out of the United States doing nothing to improve sentiment on oil.

Oil prices are still more than $20 a barrel higher than they were in June as fears about conflict in the Middle East have kept concern about supply disruption simmering.

Investors were closely watching developments in Iran where riot police clashed with demonstrators and currency exchange dealers in the capital Tehran over the collapse of the rial, which has lost a third of its value against the dollar in a week, witnesses said.

Investors were also increasingly convinced that a dispute over Iran's nuclear programme would drag on.

"Prices are not going to fall that far, as the situation between Iran and Israel will keep the heat under the market until the end of the year," Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo said.

Data from the American Petroleum Institute showed that inventories rose less than expected last week, adding 462,000 barrels, against expectations for a build of 1.5 million barrels.

The U.S. Energy Information Administration (EIA) releases its weekly estimates on Wednesday at 1430 GMT.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHICS Brent 24-hr chart analysis: WTI 24-hour chart analysis: U.S. euro zone, China PMI: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> GROWTH WORRIES

Concerns about global growth were already heightened after a raft of manufacturing data showed companies had yet to benefit extensively from stimulus measures by central banks and governments.

While manufacturing in the United States grew unexpectedly in September, the euro zone's factories suffered their worst quarter in nearly three years and China appeared to have lost steam.

The twists and turns in the European debt crisis are also keeping investors on edge.

Spanish Prime Minister Mariano Rajoy said on Tuesday a request for European aid was not imminent, while Greece held a new round of talks with foreign lenders to bridge differences over disputed austerity cuts.

The impact of the crisis is also being felt in the oil business, weakening demand, analysts said.

"The independent European refiners have faced a sharp increase in their financing costs, and a general lack of credit availability, as European banks have cut back on their lending, particularly to companies in the commodity space," Goldman Sachs said in a report.

"Consequently, European refiners have kept their inventories lean and their runs low as they now require higher refining margins to cover higher funding costs."

(Editing by Anthony Barker and James Jukwey)

((simon.falush@thomsonreuters.com)(+442075427681)(Reuters

Messaging: simon.falush.reuters.com@reuters.net))

Keywords: MARKETS OIL/