* U.S. monthly death toll drops to new low
* Iraq says oil production at post-war high
* Australia pulls out combat troops
By Ross Colvin
BAGHDAD, June 1 U.S. troop deaths in Iraq fell to their lowest level last month since the 2003 invasion and officials said on Sunday improved security also helped the country boost oil production in May to a post-war high.
U.S. Defense Secretary Robert Gates and Iraq's oil minister credited better security for the two milestones, which illustrated a dramatic turnabout in the fortunes of a country on the brink of all-out sectarian civil war just 12 months ago.
"We've still got a distance to go but I think lower casualty rates are a reflection of some real progress," Gates told reporters in Singapore. "The key will be to continue to sustain the progress we have seen."
American generals have stressed that the security gains are both fragile and reversible. That was shown in March, when an Iraqi government offensive against Shi'ite militias in southern Basra sparked a surge in violence in the capital and other cities, catching U.S. and Iraqi officials off guard.
The U.S. military said 19 soldiers died in May, the lowest monthly death toll in a five-year-old war that has so far claimed the lives of more than 4,000 American soldiers.
Oil Minister Hussein al-Shahristani told Reuters in an interview that the improved security had helped Iraq, which has the world's third-largest oil reserves, raise oil production to a post-war high of 2.5 million barrels per day in May.
Iraq's oil industry, hit by decades of sanctions, war and neglect, was a vulnerable target for saboteurs after the U.S. invasion. Attacks on pipelines quickly destroyed any hopes of using Iraq's vast oil reserves to fund its reconstruction.
The military says violence in Iraq is now at a four-year low following crackdowns by U.S. and Iraqi forces on Shi'ite militias in southern Basra and Baghdad and on al Qaeda in the northern city of Mosul, its last major urban stronghold.
"In May we have exceeded for the first time a 2 million barrels per day export rate. In production we have exceeded 2.5 million bpd," Shahristani said.
The number of Iraqi civilians killed in May also fell, to 505, after reaching a seven-month high of 968 in April, figures compiled by the interior, defence and health ministries showed.
U.S. officials credit the turnaround in security to President George W. Bush's decision to send 30,000 extra troops to Iraq, a rebellion by Sunni tribal leaders against al Qaeda, and a ceasefire by anti-American Shi'ite cleric Moqtada al-Sadr.
But a suicide bombing in the town of Hit in western Anbar province on Saturday night that killed the local police chief underscored the fragility of Iraq's improved security.
Police said a suicide bomber blew himself up at a checkpoint, killing police chief Lieutenant-Colonel Khalil Ibrahim al-Jazzaa, eight other policemen and four civilians.
In Iraq's more stable south, about 500 Australian troops pulled out of their base in the city of Nassiriya, signalling an end to Australia's combat mission in the country.
Australia, a close U.S. ally, was one of the first countries to commit troops to the Iraq invasion, but Prime Minister Kevin Rudd and his Labour party won election last November largely on Rudd's campaign promise to bring the troops home this year.
The war is also a big issue in the U.S. presidential election, with Republican nominee John McCain vowing not to withdraw troops until the war is won, and his Democratic opponents Barack Obama and Hillary Clinton promising to bring them home as soon as possible.
Baghdad and the United States are negotiating a new deal that will provide a legal basis for U.S. troops in Iraq when their United Nations mandate expires at the end of the year.
Iraqi government spokesman Ali al-Dabbagh said in a rare statement on the talks that they were at their early stages, but he acknowledged there were differences between Iraq and the United States over what should be included in the agreement.
"The Iraqi side has a vision and their draft differs from the American side and their vision," he said.
The talks have angered many Iraqis who suspect the United States of wanting to keep a permanent presence in Iraq, and on Friday thousands of Iraqis answered a call by Moqtada al-Sadr to protest against the negotiations.
Iraqi Prime Minister Nuri al-Maliki meanwhile asked France to supply sophisticated weaponry during a visit by French Foreign Minister Bernard Kouchner on Sunday. (Additional reporting by Haider al-Nasrallah in Nassiriya, Ammar al-Awani in Ramadi, Adrian Croft, Ahmed Rasheed, Michael Georgy and Aws Qusay in Baghdad and Andrew Gray in Singapore; Editing by Charles Dick)