* Sunni insurgents capture three towns in Iraq's Anbar
* Iraq's oil exports near record rates in June
* Gloomy euro zone data dampens economic optimism (Updates prices to settlement, adds analyst quote, adds WTI-Brent spread)
By Lorenzo Ligato
NEW YORK, June 23 Brent crude recorded its largest one-day decline in seven weeks on Monday, falling toward $114 a barrel as oil exports from Iraq remained unaffected by Islamic insurgents' continued advance on Baghdad.
Oil prices rallied nearly five percent amid the crisis in Iraq this month, touching nine-month highs above $115 a barrel last week, but have since faded.
"This reminds me of the Syrian conflict when the market spiked on worries about supply disruptions that never happened," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt. "The supply news isn't really supporting oil prices - the only thing supporting them is the fear factor."
Brent fell 69 cents to settle at $114.12 it's biggest percentage drop since May 6. U.S. crude for August delivery dropped 66 cents to settle at $106.17, its biggest slide since May 2.
The situation in Iraq pushed Brent futures to $115.71 a barrel last Thursday, the highest level since Sept. 9, 2013.
The spread CL-LCO1=R between the two benchmarks further narrowed to close at $7.95, after it had widened to $9.01 last week.
Iraq ships 90 percent of its crude exports from southern terminals, which are far from the Sunni insurgency. The country's oil exports in June were near record rates at around 2.53 million barrels per day, data showed on Monday.
The conflict in Iraq has added about a $3 per barrel risk premium into the Brent and U.S. crude oil market, according to Bill Baruch, senior market strategist at iitrader.com.
"As long as there is fighting and tension, the premium is going to stay," Baruch said.
Militants from the Islamic State of Iraq and the Levant (ISIL) seized three towns in Iraq's western Anbar province after taking control of two frontier crossings on the Iraqi-Syrian border over the weekend.
The latest ICE Brent data showed speculators had raised their net long positions last week to their highest level since September 2013. Traders and analysts suggested some were now taking profits.
Oil prices also were pressured on Monday by gloomy manufacturing data from Europe.
Markit's Composite Purchasing Managers' Index (PMI), based on surveys of thousands of companies across the 18 euro zone countries, fell to 52.8 this month from May's 53.5. The surveys showed France's private sector shrank at the fastest rate in four months and Germany's business activity expanded at a slower pace than last month.
The data dampened optimism stemming from strong HSBC manufacturing numbers out of China. (Additional reporting by Claire Milhench in London and Keith Wallis in Singapore; Editing by Jason Neely, Keiron Henderson, Jessica Resnick-Ault, Paul Simao and Chris Reese)