UPDATE 8-Oil slips on worries of demand from No. 2 consumer China
* China slowdown, U.S. output weigh on oil
* Yemen, Iraq, Libya exports fall; South Sudan to halt output
* North Sea Forties pipeline pumping rate cut by maintenance
* Dollar index struggles at one-month low
NEW YORK, July 26 (Reuters) - Oil prices fell on Friday, extending losses amid concerns over falling Chinese demand after the world's second-largest oil consumer ordered factories to reduce output over worries of excess capacity.
North Sea benchmark Brent crude fell as low as $106.63 a barrel, heading for a second weekly decline after touching a three-and-a-half-month high last week. U.S. oil traded as low as $104.10, continuing to fall after having reached a 16-month high of $109.40 last Friday.
Earlier in the day, Chinese stocks markets dropped after China's industry ministry ordered companies across 19 industries to close outdated capacity by the end of September.
The news from China overshadowed a report showing U.S. consumer sentiment is at a six-year high.
"We have a shift in sentiment towards demand concerns following Chinese economic data this week," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt. "Oil ought to be benefiting from the weaker dollar and strengthening U.S. economy, but that is not the theme today."
Brent futures for September dropped 55 cents to $107.1 per barrel by 1:50 p.m. EDT (1850 GMT), after posting a 46-cent gain on Thursday. U.S. light crude for September was down 84 cents at $104.66 a barrel.
The North Sea benchmark's premium to West Texas Intermediate <CL-LCO1=R> held at $2.45.
Gasoline futures held steady, gaining 2 cents to trade at $3.038 a gallon.
The dollar hovered near a more than one-month low against a basket of major currencies, a move that typically would encourage investors to buy dollar-denominated commodities such as oil.
China's manufacturing activity hit an 11-month low in July and its job market weakened, according to data from HSBC, raising concerns of slower demand growth in China.
"The market is focused on demand rather than supply," ANZ analyst Natalie Rampono said.
U.S. crude output hit its highest since 1990 last week, while crude inventories showed a much smaller fall in the week to July 19 than earlier in the month, data from the U.S. Energy Information Administration showed.
SUPPORTIVE SUPPLY CUTS
Supply disruptions in the North Sea, Middle East and Africa, however, offered some support to oil prices.
The North Sea's Forties pipeline has cut pumping rates by about 40,000 barrels per day (bpd) because of maintenance work, tightening supply of the crude that underpins the Brent benchmark.
In Iraq, crude exports will be cut by between 400,000 and 500,000 bpd in September due to maintenance at ports, while Yemen's key export pipeline has been blown up by tribesmen.
Protests in Libya have also halted oil exports from a key port, and South Sudan is set to stop crude output by Aug. 7 in a dispute with Sudan.
Traders are eyeing protests in Egypt on Friday for any signs that conflict will spill over into other countries in the Middle East that could threaten oil supply.
(Additional reporting by Christopher Johnson in London, and Florence Tan and Manash Goswami in Singapore; editing by James Jukwey and Leslie Adler)