UPDATE 5-Oil hits 2-1/2-month high on China data, Libya

* Front-month Brent highest since March 4

* Strongest Chinese factory data for five months

* Libya's western oilfields stay closed

* U.S. crude stocks fell by 7.2 mln barrels last week

(Updates prices; paragraphs 1, 3)

LONDON, May 22 (Reuters) - Brent crude oil hit a 2-1/2-month high above $110 a barrel on Thursday, supported by better-than-expected data on China's manufacturing industry and limited oil exports from Libya.

China's factory sector turned in its best performance in five months in May, a preliminary HSBC survey showed, suggesting a brighter outlook for demand in the world's No.2 oil consumer.

Brent crude was up 10 cents at $110.65 a barrel by 1245 GMT, just below a 2-1/2 month high of $110.77 reached earlier in the session. U.S. crude eased 20 cents to $103.87 a barrel. The U.S. contract settled up $1.74 on Wednesday, its biggest one-day gain in six weeks.

Commerzbank senior oil and commodities analyst Carsten Fritsch said oil prices had risen this week on evidence of stronger demand for oil. A variety of supply risks had already been priced into the market, he said.

"Unless there is evidence of further supply disruptions, I don't think crude can rise very much further," Fritsch said.

Conflict in Libya helped underpin oil prices.

Its major western oilfields remained closed 10 days after the government said protesters blocking pipeline flows had agreed to leave, while total oil output edged higher, the National Oil Corp said.

Only the small 30,000 barrels per day (bpd) Wafa oilfield was producing normally in the west, NOC said. Oil output in the OPEC-member was around 230,000 bpd, well below the country's 1.6 million bpd capacity.

Oil prices also drew support from data on Wednesday showing a plunge in U.S. crude stocks last week as imports slumped to their lowest since 1997 and domestic production rose.

Crude inventories in the world's biggest oil consumer fell 7.2 million barrels last week, the Energy Information Administration (EIA) said, compared with analysts' expectations for an increase of 750,000 barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub fell 225,000 barrels, EIA said.

Commodities such as oil were supported by minutes of the U.S. Federal Reserve's last meeting that reassured investors that policymakers would continue to support the U.S. economy.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; Editing by William Hardy and Jane Baird)