Brent crude fell by more than $3 to below $118 a barrel on Thursday, as fund managers and traders pulled money from across the commodities sector as concerns about interest rate rises and demand destruction began to bite.

At 1131 GMT, Brent crude futures for June were down $3.41 to $117.78, after dipping to an intraday low of $117.62. US crude for June was down $2.85 to $106.39 a barrel after falling more than $3 to $106.20.

Oil had been trending down all morning following bearish inventory data from the US and discouraging economic indicators, but the real selling kicked in when Brent crashed through an important technical level at $120 a barrel.

'It's a bit of an exodus,' said Rob Montefusco, an oil trader at Sucden Financial.

Olivier Jakob, an oil analyst at Petromatrix, said the next big line of support for US crude was at $106 a barrel, while Brent had already failed to hold its 50-day moving average at $118.50 a barrel.

A trader with a major bank said much of the selling, which was mirrored in base and precious metals, could be attributed to fund managers pulling out of commodities as the end of the second round of quantitative easing in the US loomed.

'People won't sit and wait until the end of June when the official bond buying programme ends,' the trader said.

Analysts and traders added that bearish inventory data from the US Energy Information Administration on Wednesday had hit the oil price.

Weekly US crude oil stocks rose by 3.4 million barrels even as imports fell, contrary to analysts' expectations for a 2 million-barrel gain.

'The EIA numbers did not help the bulls,' said Edward Meir, a senior commodity analyst at MF Global in the United States.

Oil was also weighed down by economic data showing a sharp slowdown in the services sector and less hiring by private companies in April, indicating a sputtering recovery in the world's largest economy.

'We are beginning to see the impact of high oil prices on oil demand and on the economy,' said Christophe Barret, an energy analyst at Credit Agricole.

'All the indicators we got yesterday were pretty low, and the demand numbers from the EIA were pretty low too.'

Commerzbank analysts noted US prices at the pump were now above the $4 a gallon mark for the first time since summer 2008 and this would probably prevent a recovery in gasoline demand.-Reuters