UPDATE 1-Oil steady above $68 on neutral U.S. stocks data

                                
 * US weekly jobless data, ISM Aug index due later to set
tone
                                
 * OPEC meeting next week likely to keep supply targets
steady
 (Updates with prices, Asian markets)
                                
 By Jennifer Tan
                                
 SINGAPORE, Sept 3 (Reuters) - Oil was steady above $68 on
Thursday, after settling unchanged a day earlier, as a steep
fall in U.S. gasoline inventories offset a
smaller-than-expected drop in crude stocks in the world's top
energy user.
                                
 Traders will scour weekly jobless claims and a gauge of
non-manufacturing sector activity for August due later for
clues on how strongly the U.S. economy is recovering.
                                
 By 0540 GMT, U.S. crude for October delivery <CLc1> was up
23 cents at $68.28 a barrel, after settling at $68.05 on
Wednesday. London Brent crude <LCOc1> rose 8 cents to $67.74 a
barrel.
                                
 While steady for the last two days, oil is still down more
than 6 percent so far this week, having dropped nearly $5 a
barrel on Monday and Tuesday as worries over the health of the
global economy and the U.S. financial sector sent investors
scurrying for cover.
                                
 "The main drivers will be the U.S. dollar and the stock
market, which is currently in a correction phase, so the crude
market is going through the same," said Sumisho Sano, General
Manager of SCM Securities Research.
                                
 "The stock market has largely discounted the recovery of
the economy. Sentiment will be weak in the short term."
                                
 U.S. inventories sent mixed signals, with a 400,000-barrel
drop in crude stocks last week, but gasoline inventories showed
a steep 3-million-barrel drop as U.S. fuel demand rose slightly
over year-earlier levels. [EIA/S]
                                
 Economic data was also not convincing, with U.S. private
employers cutting 298,000 jobs in August, less than July but
more than the 250,000 job losses economists had expected, while
new orders at U.S. factories rose 1.3 percent in July, but
below economists' expectations.
                                
 Key data due later is expected to provide more trading
cues.
                                
 At 1230 GMT, the U.S. Labor Department will release
first-time claims for jobless benefits for the week ended Aug
29. Economists polled by Reuters forecast a total of 560,000
new filings, down from 570,000 in the prior week. <ECONUS>
                                
 The Institute for Supply Management (ISM) will unveil its
August non-manufacturing index at 1400 GMT. Economists forecast
a higher reading of 48.0 versus 46.4 in July.
                                
 In Asia, stocks in Japan slipped and the dollar fell to a
seven-week low on growing unease that the U.S. employment
picture may reflect a slower recovery than investors have
priced into markets, raising uncertainty about riskier assets.
[ID:nHKG230279]
                                
 Traders were also eyeing news that big oil producers are
increasing output. Russian oil output hit a record high in
August, nearing 10 million barrels per day as the country
launched a new giant field. [ID:nL2461058]
                                
 Supply from the Organization of the Petroleum Exporting
Countries rose in August for a fourth consecutive month, taking
overall output discipline to 68 percent of the target from a
revised 70 percent in July, a Reuters survey showed. [OPEC/O]
                                
 OPEC is likely to keep output targets steady when it meets
Sept. 9, a Kuwaiti OPEC delegate said. [ID:nL2552488]
 (Editing by Clarence Fernandez)