(Reuters) - Brent crude fell on Thursday as U.S. productivity data and European manufacturing data pointed to a slowing economy, fuelling fears of a decline in fuel demand from industrialized nations.
U.S. non-farm productivity fell by 0.7 percent, the biggest decline since the last quarter in 2008, while new U.S. claims for unemployment benefits last week fell as expected.
Front-month Brent touched $115.27 a barrel, the highest intraday price since August 3, before falling to a low of $113.61. By 1249 GMT, October Brent was at $114.19, down 66 cents. U.S. crude benchmark West Texas Intermediate (WTI) fell 29 cents to $88.50.
The U.S. data was preceded by figures showing weakening German manufacturing activity in August, which grew at its slowest pace in almost two years, and French manufacturing activity, which contracted for the first time since July 2009.
"The main thing putting pressure on oil this morning is the really bad PMI (Purchasing Managers' Index) readings in Europe," Olivier Jakob from Petromatrix said. "We have an contraction overall in Europe in the PMIs, this is confirmation that the economy is slowing down."
The weak European data sent financial markets into a rout, with a broad sell-off only tempered by hopes of further quantitative easing in the United States. <MKTS/GLOB>
"The weak PMIs point to a slowdown in world economic activity," Christophe Barret from Credit Agricole CIB said.
Prices rose earlier in the session after China's manufacturing data showed an improvement in August, raising hopes growth in the world's largest energy consumer could offset slowing industrialized economies. China's PMI rose to 50.9 in August from a 28-month low of 50.7 in July, official data showed.
"Generally China has surprised on the upside and we expect it to continue to do so, although it will continue to moderate growth," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.
"We acknowledge the difficulties for China's policymakers to deal with inflation, but we still think that the economy will be stronger than the market is fearing."
China Premier Wen Jiabao signaled on Thursday that controlling inflation would remain a top priority in coming months even as the world economy wobbles.
EYES ON U.S. JOBS
Investors remained focus on Friday's U.S. non-farm payrolls report for August as a guide for direction in the oil market. Payrolls are expected to have increased by 75,000 jobs, according to a Reuters survey, slowing from July's 117,000 rise.
Crude prices rose on Wednesday after a report showed the U.S. private sector added 91,000 jobs in August, while an index of factory activity in the U.S. Midwest in August and U.S. July factory orders were better than expected.
Still, the data continued to portray an economy struggling to mount a sustained recovery, raising expectations the Fed would adopt new measures to shore up the economy.
"It is still mainly the hopes of further liquidity injections from the Federal Reserve that are giving lift to oil prices. From a fundamental perspective, prices have meanwhile exceeded their justified level," Commerzbank analyst Carsten Fritsch said in a note. "As long as speculation about 'QE3' continues in the market, this current exaggeration should remain intact, although the air will get thinner for further price gains."
HURRICANE WATCH
Concern about hurricane-related disruptions to supply in the U.S. Gulf of Mexico also supported oil prices.
Katia strengthened into a hurricane over the Atlantic on Wednesday, while another mass of thunderstorms that could become a named storm this week triggered evacuations of some oil workers from the Gulf of Mexico.
BP (BP.N) began to evacuate more than 500 non-essential workers from four platforms in the region, home to large volumes of crude and natural gas production.
Brent crude gained in the previous session on the back of a sharp drop of 2.8 million barrels in U.S. gasoline stockpiles last week and as North Sea production issues keep European crude supplies tight.
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