LONDON, August 8, 2008 (AFP) - Crude prices slumped below 116 dollars a barrel on Friday as the market shrugged off confirmation that separatist Kurdish rebels were behind a blast that has cut a strategic oil pipeline in Turkey.

Brent North Sea crude for September delivery shed 1.91 dollars to 115.99 dollars per barrel in electronic deals.

New York's main contract, light sweet crude for September delivery dropped 1.73 dollars to 118.29 dollars a barrel.

The Baku-Tbilisi-Ceyhan (BTC) pipeline at Refahiye in eastern Turkey has been on fire since the blast on Tuesday and was expected to be closed for about two weeks.

The separatist Kurdistan Workers' Party (PKK) said on Friday that the explosion was 'an act of sabotage' by its militants, according to a report on the website of the Firat news agency which is close to the rebels.

World oil prices had rebounded back above 120 dollars on Thursday on news that the pipeline carrying crude from Central Asia to the West would remain shut for about 15 days.

The BTC was inaugurated in 2006, carrying oil from the Caspian Sea fields to Turkey's Mediterranean port of Ceyhan, from where tankers transport the crude to Western markets.

Despite modest price gains on Thursday, the oil market has dived lower this week on mounting concern that slower economic growth in the United States would translate into lower global energy demand.

On Monday, prices slumped under 120 dollars a barrel in New York and London for the first time in three months, as a tropical storm looked set to miss energy installations in the Gulf of Mexico.

The US government meanwhile reported US consumer spending, which fuels two-thirds of output, had cooled in June and inflationary pressures accelerated.

Prices extended their slide on Tuesday as signs of a slowing global economy raised further doubts about demand.

The US Federal Reserve held its short-term interest rate unchanged at 2.0 percent, citing lacklustre growth in the world's largest economy and inflation worries.

The United States is the world's biggest energy user and slowing consumer spending tends to weigh on global oil demand projections.

Crude futures also lost ground on Wednesday after news of a surprise jump in US oil reserves, traders said.

The US Department of Energy announced in its weekly report that American crude reserves had increased by 1.7 million barrels in the week ended August 1.

The reading caught the market off guard because expectations had been for a 200,000-barrel decline.

Traders are closely tracking the level of US gasoline stockpiles amid the ongoing peak-demand summer driving season, when many Americans take to the roads for their summer holidays.

Oil futures have shed about 20 percent in value since hitting record highs above 147 dollars per barrel on July 11.