Oil down more than 1 pct as Asia shares extend drop

SYDNEY, Mar 5 (Reuters) Oil prices fell more than 1 percent to below on Monday after mounting losses in Asian stock markets fuelled growing concerns over economic growth, prompting investors to pull back from riskier assets.

U.S. crude which fell as much as 83 cents in early trade, was down 64 cents at a barrel by 0434 GMT, extending Friday's 36-cent decline -- the market's first fall after a seven-session rally built on signs of shrinking U.S. gasoline stockpiles and Iran's standoff with the West.

London Brent crude fell 68 cents to .40.

Oil, which rose half a dollar last week as traders shrugged off the turmoil that hit other markets, appeared on Monday to be succumbing to the global flight from risk that caused U.S. stocks to suffer their worst week in over four years.

Despite assurances from IMF chief Rodrigo Rato on Friday about the strength of the global economy, Asian share markets kept falling on Monday, raising fears that the impact may not be as limited as many oil traders first believed.

Analysts have said the economy of number-two oil consumer China, where a sharp drop in the main equities market triggered last week's rout, remains strong, but economic data out of top user the United States has raised some concerns.

A survey showed on Friday that U.S. consumer sentiment fell more than expected in February, hitting a five-month low on concerns over incomes and jobs. Investors worry that a slowdown in the world's largest economy and the biggest consuming nation would significantly cut oil demand.

''Investors were cautiously hoping for the equities markets to steady this week but the Asian markets have continued to fall, so that's making people nervous,'' said Dariusz Kowalczyk, an analyst at Hong Kong-based CFC Seymour Ltd.

Japan's Nikkei average fell below 17,000 for the first time in nearly two months on Monday, down more than 2 percent, while Hong Kong's Hang Seng index lost over 2 percent.

''The key factor... is the outlook for global demand because some data on U.S. growth has been quite negative,'' Kowalczyk said, adding that investors are pulling out of commodities assets to switch to safer bets such as U.S. Treasuries.

SUPPLY CONCERNS Despite the retreat, oil prices remain near their highest in two months and well above their 20-month low in mid-January of under a barrel, with traders growing anxious over summer gasoline supply and keeping a wary eye on Iran.

U.N. ambassadors of major world powers are due this week to begin drafing a formal Security Council resolution to convince the world's fourth-largest crude supplier Iran, to quit enriching uranium. The previous sanctions agreed in December took months to agree amid reservations from China and Russia.

Analysts said reaching an agreement on the resolutions would be a long process, but fears of Iran cutting oil exports in retaliation persist.

Focus is also shifting to next week's OPEC meeting in Vienna, with most ministers favouring a rollover on current output levels.

Algeria's oil minister Chakib Khelil joined that chorus on Saturday, saying there would be no changes in output and predicting prices would remain in a range of - a barrel in the second quarter of this year.

''Even though the market wasn't expecting OPEC to trim production again, there are still concerns about possible excess supply since the northern hemisphere is entering spring and will be seeing weaker demand,'' said Gerard Burg, an analyst at the National Australia Bank.

REUTERS CS DB1116