Oil drops $3 to 4-year low

By Matthew Robinson

NEW YORK (Reuters) - Oil dropped more than 6 percent to a four-year low on Friday after a U.S. report showed the heaviest job losses in 34 years in the world's top energy consumer.

U.S. employers axed payrolls by 533,000 in November, the weakest performance since 1974, adding to a crush of dour economic and demand data that has sent crude spiralling down from highs over $147 a barrel in July.

U.S. crude plunged $2.77 to $40.90 per barrel by 2:30 p.m. EST (7:30 p.m. British time) after touching $40.50, the lowest since December 2004. London's Brent crude traded down $2.20 to $40.12 a barrel.

"This translates, irrefutably, into further and severe contracting demand," John Kilduff, senior vice president at MF Global in New York, said in a research note.

"Conventional wisdom now holds that there will be a test of the $40 level fairly soon, perhaps even as soon as today."

U.S. and European stock markets fell after the jobs report, while the U.S. auto industry's drive for a $34 billion emergency taxpayer bailout moved into a second day of testimony by top executives on Capitol Hill.

China and India, two main drivers behind oil's six-year rally, moved to cut domestic prices for the first time in nearly two years, curtailing refinery profits to help stimulate growth in their flagging economies.

Analysts have slashed price and demand forecasts on the mounting economic gloom, with Merrill Lynch MER.N predicting oil could drop to $25 a barrel if the global recession extends to China.