UPDATE 8-Oil down nearly 4 pct on U.S. unemployment data

                                
 * U.S. payrolls fall 524,000 in December
                                
 * Saudi Arabia to deepen output cuts in February
 (Updates prices, adds comment; changes dateline from LONDON)
                                
 By Edward McAllister
                                
 NEW YORK, Jan 9 (Reuters) - Oil prices fell nearly 4
percent on Friday as data showing a big rise in U.S.
unemployment deepened the gloomy outlook for the world's
biggest oil consumer.
                                
 U.S. employers slashed payrolls by 524,000 in December,
driving the national unemployment rate to its highest level in
almost 16 years, a government report showed, suggesting the
year-long recession was deepening. [ID:nN09282664]
                                
 The jobless rate rose to 7.2 percent, the highest since
January 1993. Analysts polled by Reuters had predicted a
reduction of 550,000 jobs in December.
                                
 U.S. crude for February delivery <CLc1> fell $1.60 to
$40.10 a barrel by noon EST (1700 GMT). London Brent crude
<LCOc1> was down 90 cents at $43.77.
                                
 "The obvious calculation for oil prices is that perhaps the
demand calculations which pulled prices down to an intraday low
of $32.40 on Dec. 19 were correct," Mike Fitzpatrick, vice
president at at MF Global, said in a note.
                                
 "The overhang of bearish crude inventory continues to be
what is pressuring crude futures," said Dominick Chirichella,
senior partner at the Energy Management Institute in Point
Pleasant, New Jersey.
                                
 Government data released Wednesday showed a
larger-than-expected jump in oil stocks, which helped to push
prices lower. [EIA/S]
                                
 The market on Friday appeared to be largely ignoring
evidence that oil producers were cutting output in an attempt
to support prices.
                                
 Top crude exporter Saudi Arabia was the latest member of
the Organization of the Petroleum Exporting Countries to show
it was cutting output in line with a deal agreed in December.
                                
 It will deepen its supply cuts in February from January to
at least three Asian crude buyers, industry sources said on
Friday. [ID:nT53507]
                                
 Kuwait and Iran also told customers this week of bigger
supply curbs this month, after OPEC agreed its biggest ever
production cut in December in a bid to bolster prices.
[ID:nSP184486]
                                
 One prop of the recent rally that had lifted oil prices
since the start of the year looked likely to be removed, after
Russia reached an agreement to deploy European Union monitors
to ensure the smooth flow of gas via Ukraine. [ID:nL9190052]
                                
 The threat of widening supply disruptions in Europe from
the Russia-Ukraine gas dispute, as well as Israel's invasion of
Gaza, had boosted oil to a one-month high of $50.47 on
Tuesday.
                                
 While the Gaza conflict does not directly threaten oil
supplies, Middle East unrest can bolster prices because
countries in the region pump about a third of the world's oil.
                                
 Oil prices have fallen more than $100 from a record peak of
above $147 a barrel in July as the global economic downturn
hits demand for fuel. It settled at $33.87 a barrel on Dec. 19,
the lowest level since Feb. 10, 2004.
 (Additional reporting by Robert Gibbons and Gene Ramos in New
York, Christopher Johnson in London and Jennifer Tan in
Singapore; Editing by Walter Bagley)