UPDATE 9-Brent crude oil down on Cyprus fears, bounces off 3-month low
* Cyprus bailout plan stokes fear about euro zone
* Oil bounces off lows after U.S. Labor Dept data
* Armed clashes break out at Libyan oil field
(Adds latest on Cyprus bank account levy)
NEW YORK, March 18 (Reuters) - Brent crude oil fell on Monday, hitting a three-month low beneath $108 a barrel in early trade after a plan to tax bank accounts in debt-laden Cyprus sparked fears of more turmoil in the euro zone.
Oil prices rebounded from session lows as evidence of a stronger employment picture in the United States bolstered the outlook for energy demand. Also, Saudi Arabia's top oil official said prices near current levels won't hurt the economy.
In early trade, Brent crude fell as low as $107.78 a barrel, a level last hit in mid-December, before recovering to finish down just 31 cents at $109.51 per barrel.
U.S. oil fell to a low of $91.76 a barrel before reversing losses, settling 29 cents higher at $93.74 a barrel.
Oil markets will remain volatile for the next few days as investors watch for any spillover of the developments in Cyprus to other euro zone nations, analysts said.
Cypriot ministers were trying to revise a plan to seize money from bank deposits before a parliamentary vote on Tuesday that will secure the island's financial rescue or could lead to its default, with reverberations across the euro zone.
"Although Cyprus is small, there was some concern that it was being made a test case for policy," said Tim Evans at Citi Futures Perspective in New York.
"The strong initial reaction has policy makers backpedaling from the deposit tax idea, but it may be hard for markets to forget the risk."
Gold rose to a two-week high above $1,600 an ounce and the U.S. dollar firmed as investors sought out safer assets. A stronger U.S. currency can weaken dollar-priced commodities like oil as they become more expensive for overseas buyers.
European equity markets finished lower and the S&P 500 and Dow Jones Industrial Average both fell by around 0.5 percent.
Shortly after 4 p.m. EST (2000 GMT) , after oil and equity markets had settled for the day, a Greek Finance Ministry source said the Eurogroup has decided to give Cyprus more flexibility on the bank levy that is tied to its 10 billion euro bailout.
The source said euro zone finance ministers would recommend Cyprus does not touch accounts holding less than 100,000 euros, though the Eurogroup still expects the small Mediterranean nation to raise 5.8 billion euros from the levy on deposits.
Further losses in oil were stopped by expectations of a stronger economy in the United States, the world's largest oil consumer, and comments from Saudi Arabia's top energy official that oil prices near current levels won't hurt demand.
Almost all U.S. states began 2013 with lower unemployment rates than they had at the start of 2012, according to Labor Department data.
Saudi Arabian oil minister Ali al-Naimi said current oil prices will have no impact on growth in Asia. The region's biggest economies, including China, have struggled with rising energy costs in their efforts to boost growth.
Worries of an escalation in a standoff between the West and Iran over Tehran's disputed nuclear program could also help ensure prices do not fall much further. Concerns of supply disruption from the Middle East have kept Brent largely above $100 a barrel since early 2011.
In Libya, armed clashes broke out at an oil field belonging to Libya's Waha Oil on Monday, where protesters seeking jobs had been blocking the site entrance for the last eight days.
A company source said a militia attacked the security forces guarding the oil field. The protesters have been calling on Waha to use locally hired vehicles and drivers.
(Additional reporting by Christopher Johnson in London and Osamu Tsukimori in Tokyo; Editing by Marguerita Choy and David Gregorio)