BEIRUT (Reuters) - Lebanon suffered its third day with only patchy Internet connectivity on Friday after the fiber optic cable it relies on was severed 30 miles off the coast of Egypt.

Telecoms Minister Nicholas Sehnaoui posted on his Twitter account that nearby Cyprus has agreed to reroute traffic until the cable was repaired.

"This will increase the speed back to normal all over Lebanon," he said.

But the Internet in the capital Beirut remained slow, or not working at all, on Friday, hampering businesses that are already suffering in some places because of the threat of a spillover from the conflict in neighboring Syria.

"It is like running an engine at less than full power. A three-day outage for Lebanon is like losing 10 percent of the country's monthly productivity, especially for a service-based economy," CEO of private Internet provider Terranet Khaldoun Farhat said.

Farhat said the outage had been a large cost for his business. To keep providing Internet access, he has had to buy satellite bandwidth for four times the price he normally pays the government.

"This is one more disruption to economic activity that we don't need," said Nassib Ghobril, chief economist at Byblos Bank Group. "The telecoms sector needs to be reformed. It needs to be liberalized," he said.

Lebanon is famed for its entrepreneurs who persevere even during the depths of war but its snail-pace and costly Internet service has been an embarrassing blot on the economy.

Ookla, a company that tests Internet speeds around the world, has often ranked Lebanon last on its global Net Index, and the country has generally been lower down than many less developed nations such as Afghanistan and Burkina Faso.

Many blame Internet problems on a backwards policy which allocates the state-owned land-line provider Ogero 80 percent of the market, pushing out private companies. The state monopoly is a significant financier for the treasury, critics say.

Farhat says Lebanon is in dire need of a backup cable.

Cyprus lies between Lebanon and the damaged section of the cable but back up lines have kept its Internet working so it can provide help for Lebanon.

(Reporting by Douglas Hamilton and Oliver Holmes; Editing by Alison Williams)