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LONDON (Reuters) - Oil surged above $77 a barrel in Europe as BP (BP.L: Quote) began shutting an Alaskan field that pumps 8 percent of U.S. crude and anxiety over the Middle East, supplier of almost a third of the world's oil, ran high.

London Brent crude <CLOc1> climbed as much as two percent to $77.73 a barrel, within reach of its all-time high of $78.18, on expectations that the United States would scour European markets for replacement oil. At 1044 GMT it was up $1.25 at $77.42.

U.S. crude <CLc1> was up $1.54 at $76.30, off a $76.55 high.

BP Plc (BP.L: Quote) said on Sunday it was shutting the Prudhoe Bay oilfield in Alaska for repairs, cutting production by 400,000 barrels per day (bpd) after discovering severe corrosion and a tiny spill from a Prudhoe Bay oil transit line.

A BP spokesman said on Monday it would take several days to shut the field adding "beyond that speculation is pointless."

"The BP field is a sizeable stream. The world is already concerned about supplies and this is just adding to concerns," said Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo.

Oil has rallied 25 percent this year with a quarter of Nigeria's output shut by militants, saboteurs playing havoc with Iraq's exports and consumers afraid Iran could halt oil flows to punish opponents of its nuclear program.

War in Lebanon has added to unease.

Citigroup said the loss of the BP field further cut the volume of spare oil available to the 85 million bpd world market. It assumed Prudhoe Bay's closure could last months.

"We estimate that 'effective' spare capacity, after taking account of 500 million bpd of Nigerian outages, was 2 million bpd, it now falls to closer to 1.6 million bpd."

"With concerns over security of supply from a number of key exporters (Iran, Nigeria and Venezuela) undiminished we see the situation in Alaskan as supportive," Citigroup said in a report.

Analyst Jim Ritterbusch of Ritterbusch and Associates in Galena Illinois said the United States could cover the lost output with imported oil. The United States is the world's biggest oil consumer by far, using 25 percent of its crude.

"This latest setback to global oil production comes in the context of a relatively tight oil market," BNP Paribas said.

"In this environment we maintain our forecast for Brent crude of $77 a barrel this quarter, and so implicitly expect prices to move above $80 a barrel at some point this quarter."

MIDDLE EAST BOILS

Tensions in the Middle East rose after Iran again invoked its oil exports for political leverage and Lebanon rejected a draft U.N. resolution meant to end the war between Israel and Hizbollah, delaying its vote.

A further spike in oil prices resulting from a broader Middle East conflict would drag an already slowing U.S. economy into recession more easily now than a year ago, Standard & Poor's said on Monday.

The credit ratings agency forecast three scenarios -- with a $250 oil barrel sparking global recession in the worst of them, should Iran close the Strait of Hormuz, a bottleneck in the Gulf region between Iran and Oman by which tankers from Kuwait, Saudi Arabia and the United Arab Emirates transit.

But the most likely scenario, based on a limited conflict, has prices falling from current $75 levels to below $70 by year-end and to $60 by end-2008, which would allow the world economy to keep expanding, with U.S. growth slowing to 2.5 percent in 2007, S&P said.

Iran, the fourth-largest oil exporter, vowed on Sunday to expand its atomic fuel work and warned of a harsh response if the United Nations imposed sanctions aimed at halting enrichment.

"If they do (impose sanctions), we will react in a way that would be painful for them," said Tehran's chief nuclear negotiator Ali Larijani.

"We do not want to use the oil weapon, it is they who would impose it upon us," he told a news conference, adding Iran would expand the number of atomic centrifuges it was running.