* European shares weaker despite China rate cut, Bernanke weighs * Bernanke says Fed to act if Europe crisis deepens * Coming Up: U.S. International trade April; 1230 GMT (Updates prices, adds quotes, commentary) By Julia Payne LONDON, June 8 (Reuters) - Oil prices fell below $98.50 on Friday, tracking declines in the euro and European shares spurred by Spain's worsening banking crisis and after hopes of fresh global monetary stimulus were undermined by the head of the U.S. central bank . Federal Reserve Chairman Ben Bernanke's testimony to Congress offered little encouragement to investors hoping the Fed would launch a third round of bond buying, or quantitative easing. Top European shares opened down 0.7 percent and the euro retreated to below $1.25 after a two-week high on Thursday. Brent crude for July dropped $1.58 to $98.35 a barrel by 0952 GMT, partly recovering from a $2.00 fall to a low of $97.19. U.S. crude prices fell $2.00 to $82.82 a barrel, having touched a low of $82.59. Both contracts are down for a second day. Brent is poised to remain mostly unchanged for the week, having posted losses for the past five weeks. U.S. crude is set to fall for a sixth week in a row. Bernanke said the Fed was closely monitoring "significant risks" to the U.S. recovery from Europe's debt crisis but struck a different tone from the central bank's No. 2 official, who argued in favor of monetary support on Wednesday. "Renewed deterioration in market sentiment after Bernanke's speech yesterday and Fitch's Spanish downgrade are driving down commodities," said Carsten Fritsch, analyst at Commerzbank. Weekly data from the U.S. Energy Information Administration (EIA) on Thursday showed domestic stocks of crude, excluding oil held in the Strategic Petroleum Reserve, fell 111,000 barrels to 384.63 million barrels in the week to June 1. Analysts polled by Reuters had forecast a decline of 500,000 barrels. "The fact oil is falling more than other commodities is because the market is well supplied and the EIA numbers yesterday showed a smaller stock draw," Fritsch said. The Fed comments offset early support from a surprise interest rate cut by China, the first since the global financial crisis. But cheers over China's decision to cut were short lived as investors and economists worried that the move signalled the impending release of grim economic data. A series of data from the world's second-biggest oil consumer China, due over the weekend, will be a key factor for prices next week. "Few market participants will want to enter the weekend carrying large positions ahead of the May Chinese data dump on Saturday after the central bank's move," ANZ analysts said in a report. EUROZONE Troubles in the euro zone overshadowed tensions between the West and Iran, OPEC's second largest oil producer, which helped push Brent prices to a record high $128 a barrel in March. German exports and imports fell sharply in April, in a sign that Europe's largest economy is beginning to feel the chill from the crisis. Seasonally adjusted imports dropped 4.8 percent, their strongest decline in two years. Following its downgrade by ratings agency Fitch, Spain is expected to request European aid for its banks at the weekend becoming the fourth and biggest country to seek help since the euro zone debt crisis began, EU and German sources said. Concerns over the impact of lost Iranian crude exports once the July 1 embargo comes into effect are also easing. Oil officials and executives, including the heads of Total, Royal Dutch Shell and Algeria's oil minister, said this week that the global oil market is well supplied and can cope with the loss of Iranian crude to Western sanctions. Furthermore, the United States is expected to announce a new list of countries that will receive exemptions to financial sanctions on oil trade with Iran as soon as early next week, a government official said on Thursday. (Editing by Anthony Barker)

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