Brent crude touched a two-week low near $111 on Monday, down by nearly $3 on investor pessimism that economic growth will slow after Japan's earthquake and tsunami, while easing unrest in the Middle East threw the focus back onto ample oil supplies.

April Brent fell as much as 2.4 percent to $111.16, the lowest price since February 25. It was down $1.64 at $112.20 at 0750 GMT (3:50 a.m. ET), while U.S. crude fell $2.15 to $99.01, after hitting an intraday low of $98.55. Brent reached a 2-1/2-year high of almost $120 on February 24 as a civil war erupted in Libya, disrupting oil exports.

Japan's strongest earthquake on record on Friday shut refineries and industrial plants in the world's third-largest oil consumer. Infrastructure damage may curb demand in the near term, while reconstruction may boost use further down the line.

Expectations of higher demand for LNG, crude and fuel oil to substitute 9,700 megawatts (MW) of nuclear power capacity lost after the 8.9-magnitude quake are helping boost the value of Brent later this year relative to the prompt prices. U.S. natural gas rose almost 1 percent.

If you discount what has happened in the Middle East, events in Japan are negative for growth, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.

But the market perhaps is overdoing it. If you look at the concerns of nuclear power, they are going to have to shift to thermal- or oil-powered generation. That should support oil.

Police presence across cities in top oil exporter Saudi Arabia sputtered planned day of rage protests on Friday, while in neighboring Bahrain the crown prince offered assurances of national dialogue on Sunday after police fired tear gas and water cannon at demonstrators.

The day of rage wasn't so bad, and these are all concerns that are in the background. Japan is more real, Barratt said.

Arab countries appealed to the United Nations on Saturday to impose a no-fly zone on Libya as government troops backed by warplanes fought to drive rebels from remaining strongholds in western Libya.

Muammar Gaddafi's troops battled rebel fighters for control of the strategic Libyan oil town of Brega on Sunday, as France promised to push harder for a UN-backed no-fly zone over what used to be Africa's third-largest oil producer, before a civil war slashed output by at least two-thirds.

Saudi Arabia and other OPEC producers have increased production, partly to offset the drop in Libyan exports.

A hydrogen explosion rocked the earthquake-stricken nuclear plant in Japan where authorities have been working desperately to avert a meltdown.

Japanese automakers and electronics firms shut key factories, underscoring the challenge facing the government as it rushes to limit the economic blow.

A disaster like this requires quick action from Japanese authorities and may hamper near-term growth prospects in Japan, although it is unlikely to significantly impact the global economic outlook, said Ben Le Brun, an analyst at CMC Markets.

Japanese stocks fell 7.5 percent, posting the biggest daily decline since October 2008, and bond yields rose on Monday as investors expected the earthquake and tsunami that devastated the country's northeast to take an economic toll and require heavy government borrowing. <.T>

ENERGY MARKET IMPACT

Japan will move quickly to import more liquefied natural gas (LNG) and low-sulphur fuels to generate power at thermal plants and replace nuclear electricity supplies.

The country's demand for fuel oil at power plants was set to rise, while in the longer-term consumption of distillates including diesel would also increase for reconstruction.

The downing of refineries is of course not in itself negative for demand, as it merely affects the balance between crude and products, but other things equal, any sustained outage would tend to firm Asian product cracks, Barclays Capital analysts including James R. Crandell and Paul Horsnell said.

Reconstruction tends to be a highly resource- and energy-intensive activity.

The front of the Brent forward curve was flat and close to reverting to contango, a structure denoting reduced urgency for supplies in the near term compared to future ones, after front-month Brent commanded a premium of as much as 50 cents over the second month as recently as mid-February.

Oil prices will fall in the short term and may rebound in one or two months, said Jiang Jiemin, chairman of Asia's leading oil producer PetroChina <0857.HK>.

Speculators' net-long positions in U.S. crude futures rose by 2 percent to hit a new record high in the week to March 8, the Commodity Futures Trading Commission said on Friday, the third consecutive peak.

(Editing by Himani Sarkar)

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