Oil slipped below $113 a barrel on Friday as a rise in the dollar following better-than-expected growth in U.S. employment countered concern over a possible oil supply disruption due to tension between Iran and the West.

Crude was still on course to rise more than 4 percent in the first week of 2012 after Iran threatened to shut the Strait of Hormuz, the world's most important oil route, in retaliation for tighter sanctions from the United States and a possible ban on its crude exports to Europe.

Brent crude fell 44 cents to $112.30 a barrel by 1501 GMT, giving up an earlier gain and extending a 96 cent decline on Thursday. U.S. crude was down 80 cents to $101.01.

"The euro is a main driver and at this point is very bearish, especially when looking at Brent in euro terms and just how expensive it has become," said Michael Korn, president of Skokie Energy in Princeton, New Jersey.

The euro hit a near 16-month low against a robust dollar on Friday as investors compared sovereign funding concerns and the outlook for the euro zone to an improving U.S. economic recovery.

A U.S. government report on Friday showed employment grew solidly last month and the jobless rate dropped to a near three-year low of 8.5 percent, offering the strongest evidence yet of an acceleration in economic activity in the world's top oil consumer.

Oil initially rose after the jobs report was released and also gained support from supply risks.

Iran announced plans on Friday for new military exercises in the Strait of Hormuz, the latest in weeks of bellicose gestures towards the West as the new sanctions threaten Tehran's oil exports.

In Nigeria, a force majeure on Bonny Light crude exports on Thursday underscored the fragility of supplies from Africa's top exporter, where trade unions are threatening to call a national strike starting on Monday.

"The supply risk regarding Iran is still boiling. On top of this, there is also supply risk from Nigeria," said Carsten Fritsch, analyst at Commerzbank.

Deutsche Bank, in a report on its outlook for commodities in 2012, remained bullish on oil.

"Upside geopolitical risks outweigh the potential downside on prices from a slowing economy," the bank said. "Inventories are relatively low, and supply and demand fundamentals point to declining OPEC spare capacity over time."

Thursday's fall in prices illustrates there is strong resistance for Brent at $115 a barrel, said Olivier Jakob of Petromatrix. To the downside, key support lies at the 200-day moving average at $112.74, which held on Thursday. (Additional reporting by Florence Tan in Singapore and Jeffrey Kerr in New York; editing by Jane Baird)