UPDATE 8-Oil pares early losses on strong US service sector data
* U.S. services sector growth accelerated in July
* Libyan oil output improves to 700,000 bpd-oil minister
* Euro zone retail sales back in decline in June
* Coming up: API U.S. inventory data Tuesday 20:30 GMT
(Updates prices, adds comment) NEW YORK, Aug 5 (Reuters) - Brent crude oil pared early losses on Monday to trade back toward $109 a barrel as selling pressure eased after a report showed strong growth in the U.S. economy's service sector. Brent and U.S. crude each lost more than $1 earlier in the session on news of rebounding production in Libya and the North Sea and disappointing euro zone data showed an across-the-board drop in retail sales for the first time in three months. But both benchmarks rebounded after the Institute for Supply Management (ISM) report reported the pace of growth in the U.S. service sector surged to a five-month high in July.
"The market turned after the services number came out," said Gene McGillian, an energy analyst at Tradition Energy in Stamford, Connecticut. "Our little selloff was a continuation of profit-taking generated from last week's disappointing employment report and the Libyan export terminal coming back online, but it didn't really attract a lot of sellers." per barrel to $108.80 after earlier dropping as much as $1.40 to $107.55. U.S. crude oil futures lost 11 cents to $106.83, after earlier falling to $105.70. Prices remained under pressure, however, from news of increased supply from the Libya and the North Sea. Libyan Oil Minister Abdelbari al-Arusi told a news conference on Monday the country's oil output had improved to around 700,000 barrels per day (bpd) and the government was working to end protests at oil facilities. Arusi said last week that strikes and protests at oil terminals had cut output to 330,000 barrels per day (bpd) from 1.4 million before output was disrupted. "The return of Libyan production has applied pressure to the oil complex, including products because the loss of Libyan oil would probably have helped exports from the United States," said Phil Flynn, an analyst with the Price Futures Group in Chicago, Illinois. Output is also improving in the North Sea, industry sources say, with news that the Buzzard oilfield, Britain's largest, was expected to begin restarting later on Monday, on schedule, after a five-day maintenance shutdown. Loss of production from key oil exporters has been an important support for prices over the last month with a series of unscheduled outages disrupting output. Shipments from Iraq have also been hit by damage to pipelines and maintenance work is also expected to cut Iraqi output by between 400,000 and 500,000 bpd in September. The European retail figures cast a shadow over modestly expansionary manufacturing and construction data from Britain and Germany, highlighting the fragile nature of Europe's economic recovery and energy demand. Markit's composite euro zone PMI broke above the 50 growth threshold for the first time since January 2012. German business activity rebounded, while the downturns in the euro zone's next three biggest economies - France, Italy and Spain - eased.
(Additional reporting by Robert Gibbons in New York, Christopher Johnson in London, Manash Goswami in Singapore; Editing by Andrew Hay and Leslie Gevirtz)