Oil prices fell to their lowest in two weeks on Wednesday, hit by a build in U.S. crude stocks and a broad decline in commodities after weak U.S. economic data and concerns over tighter Chinese monetary policy.

Weekly crude stocks rose by 3.4 million barrels even as imports fell, the U.S. Department of Energy said. Stockpiles were up last week by more than the 2 million barrels that analysts had expected.

The higher crude stocks emboldened traders to sell here. At this point, however, the market is overdue for a pullback after having hit multi-year highs recently, said Gene McGillian of Tradition Energy in Connecticut.

Brent crude for June fell $1.26 a barrel to settle at $121.19 after dipping to a two-week low of $120.49 earlier in the day.

U.S. crude fell for the third consecutive day to settle down $1.81 at $109.24 a barrel. The contract has fallen nearly 5 percent since Monday, when it rose to as much as $114.83 a barrel -- the highest since September 2008.

Commodities and equities fell broadly after weak economic data in the world's top economy, with a sharp slowdown in the vast services sector and less hiring by private companies in April.

A U.S. labor market report on Friday is also expected to show payroll growth eased last month.

Oil prices failed to get a lift from Department of Energy data showing U.S. gasoline stocks fell for an 11th straight time last week, to their lowest since June 2009, although benchmark U.S. gasoline futures fell by a more modest 0.1 percent on Wednesday.

There's a bit of a shift out of risky assets like oil. It doesn't mean it has turned bearish, but the run can't keep going in one direction, said Tom Bentz, broker at BNP Paribas Commodity Futures in New York.

Oil has traded in a tight inverse correlation with the dollar this week, but the relationship broke down on Wednesday as both the dollar and oil slipped. The greenback fell to a fresh three-year low versus a basket of currencies <.DXY> and the euro briefly rose above $1.49.

CHINA FACTOR, FEAR PREMIUM

China is expected to tighten monetary policy further to curb inflation, a move that could dampen demand in the world's biggest energy consumer.

In Hanoi, China's Vice Finance Minister Li Yong said the government would continue to use measures such as higher interest rates and bank deposit requirements to curb inflation.

The impact on oil prices is likely to be muted, however, given the strength of Chinese demand, analysts said.

We have already seen some moderation in economic activity in China, but the oil market has not seen any obvious slowdown despite previous tightening, said Barclays Capital commodities analyst Yingxi Yu.

Analysts also said a fear premium on oil prices would remain in place due to ongoing tensions in oil-producing regions of North Africa and the Middle East and the recent death of al Qaeda leader Osama bin Laden.

In Libya, there was no let-up in the conflict as fighting between rebels and forces loyal to Muammar Gaddafi forced thousands of refugees to flee on foot to the Tunisian border and by boat to Europe, the United Nations said on Tuesday.

(Additional reporting by Joshua Schneyer in New York, Francis Kan in Singapore, Zaida Espana in London; Editing by Dale Hudson)

China Libya Energy Fall