UPDATE 10-Oil falls as economic data dims demand outlook

* China, Europe services PMI disappoint

* U.S. RBOB gasoline futures continue sell off

* U.S. crude stocks dip unexpectedly - EIA

(Updates prices, market activity)

By Robert Gibbons

NEW YORK, Oct 3 (Reuters) - Oil prices fell sharply on Wednesday as disappointing economic data from China and Europe reinforced concerns about slowing growth and a weakening outlook for petroleum demand, even as supportive U.S. data strengthened the dollar.

U.S. November RBOB gasoline futures

retreated a second straight session, falling 2.5 percent, helping pressure U.S. crude to a two-month low.

Concerns about China and Europe allowed investors to shrug off any supportive sentiment that might have accrued from the U.S. Energy Information Administration's (EIA) weekly inventory report. The EIA said U.S. crude stocks fell 482,000 barrels last week, against forecasts stockpiles would be up 1.5 million.

"The global economy is in a rut, and even with supportive EIA data crude is down," said Dan Flynn, an analyst at Price Futures Group in Chicago.

Brent November crude

fell $3.40 to settle at $108.17 a barrel. As of 3:38 p.m. EDT (1938 GMT), the day's low was $107.67, lowest price since Sept. 20.

Brent's drop on Wednesday put it in sight of the 100-day moving average of $106.28, after Tuesday's settlement below two technical levels closely watched by traders charting price movements - the 50-day moving average at $112.06 and the 200-day moving average at $112.09.

U.S. November crude slumped $3.75 to settle at $88.14 a barrel, below its 100-day moving average of $89.99 and having dropped to $87.70 in post-settlement trading, its lowest since prices fell to $87.23 on Aug. 3.

The 4.08 percent slide was biggest one-day percentage drop since June 21.

In addition to the slump in U.S. gasoline

, which settled 6.97 cents lower, heating oil joined in the retreat, falling 5.91 cents.

"What it is indicative of is product stocks are unusually tight. We are exporting a lot of product," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis.

Gasoline's settlement left front-month futures down 54.25 cents from where October futures settled and went off the board last Friday.

U.S. gasoline stocks rose slightly, by 114,000 barrels, last week, the EIA's report said, while distillate inventories fell 3.69 million barrels, much more than expected.

Gasoline stocks were expected to be down 600,000 barrels, while total distillate supplies were estimated to be down only 400,000 barrels, a Reuters survey of analysts showed.

Ahead of Friday's closely watched September nonfarm payrolls report, separate reports showed U.S. private employers added more jobs than expected in September and activity in the vast services sector picked up.

The reports increased hopes that the U.S. economy might be on a more stable economic path and helped the dollar rise across the board, but a stronger U.S. currency can pressure dollar-denominated commodities like oil.


Dwindling new orders and more layoffs marked a worsening decline for euro zone companies last month, according to business surveys released on Wednesday. Markit's Eurozone Composite Purchasing Managers Index (PMI) fell to 46.1 in September from 46.3 in August.

China's normally robust services sector weakened sharply in September to its lowest point since November 2010 as slow growth in manufacturing began to feed through to the rest of the economy, an official survey showed.

China's official purchasing managers' index for the services sector fell to 53.7 in September from 56.3 in August.

Highlighting the faltering economy's effect on oil consumption, retail sales in the euro zone barely rose in August as motorists cut back spending on fuel during the normally busy driving months in the summer.

"There's little to be cheerful about. There's worry about whether Spain will ask for a bailout or not and there's major uncertainty around China," said Filip Petersson, an analyst at SEB in Stockholm. "It's difficult to be bullish at the moment."



ADP/U.S. Labor Department data comparison:

Markit PMI: U.S., euro zone, China:

Brent 24-hr chart analysis: WTI 24-hour chart analysis:


(Editing by Marguerita Choy)

((robert.gibbons@thomsonreuters.com)(+1 646 223 6059)(Reuters Messaging: robert.gibbons.reuters.com@reuters.net))

Keywords: MARKETS OIL/