UPDATE 6-Brent crude falls as supply concerns ease
* Dollar dips after hitting three-year high
* Protests in Egypt, stalled political talks stoke supply concerns
* U.S. crude hits 14-month high in the wake of Friday's U.S. jobs data
(Updates prices; changes byline and dateline, previous LONDON)
NEW YORK, July 8 (Reuters) - Brent crude oil fell on Monday as the return of a major Libyan oilfield eased concerns about global oil supply, following an early rally to a three-month high above $108 a barrel on ongoing unrest in Egypt.
Libya's major Sharara oilfield will resume operations after an agreement was reached with the armed group that shut it down last month, a senior Libyan oil source said on Monday.
The drop comes after oil prices posted their biggest weekly gain in a year last Friday, as tension in Egypt rattled markets and better-than-expected U.S. labor data sparked concern about the wind-down of the U.S. Federal Reserve's monetary stimulus.
Brent, the European benchmark, fell 40 cents to $107.32 a barrel by 11:02 a.m. EDT (1502 GMT), after hitting $108.04, the highest since April 4.
U.S. crude slipped 32 cents to $102.90, after earlier touching a fresh 14-month high of $104.12.
The spread between the two benchmarks was at $4.42, after earlier narrowing to $3.78.
"The market is a bit less concerned about a major disruption in Egypt, and was probably overbought a little bit going into the holiday weekend," said Phil Flynn, energy analyst at Price Futures Group.
He said it was not unusual for prices to surge ahead of holiday weekends. U.S. markets were closed on Thursday for the Independence Day holiday.
"Going into the holiday weekend we're always nervous about geopolitical risk and the market has a tendency to overcompensate, so we're seeing some of that protection buying start to come off."
At least 42 people were killed in Cairo on Monday, medical sources said. Islamist protesters angered by the military overthrow of President Mohamed Mursi said they were fired on at the Cairo military barracks where he was being held.
Any conflict in the Middle East raises worries of disruption at major oil-producing areas or oil shipments.
"The situation is very tense, keeping market participants on edge and adding to recent concerns over the ongoing violence in Syria," said Andrey Kryuchenkov of VTB Capital.
So far, ports and shipping through the Suez Canal - through which a major portion of the world's oil is shipped - have been operating normally.
"It is Egypt's position as a major transit point for global crude oil movements that explains the current concern and geopolitical risk premium assigned to the goings on in that country," said a research note from Standard Bank.
Investors are also keeping an eye on the euro zone, where euro zone finance ministers will decide on Monday if Athens gets the cash it needs all at once or by drip feed. Greek officials have offered fresh promises to redouble reform efforts to keep international financial aid flowing.
(Additional reporting by Peg Mackey in London and Jessica Jaganathan in Singapore; Editing by Chris Reese)