UPDATE 8-US oil slumps on economy, drops 8.9 pct in Aug

                                
 * U.S. crude prices end Aug down 8.9 pct for the month
                                
 * U.S. crude inventories expected to have risen last week
                                
 * Coming up: EIA oil data on Wednesday, 10:30 a.m. EDT
                                
 (Updates prices and with API inventory data after release)
                                
 By Robert Gibbons
                                
 NEW YORK, Aug 31 (Reuters) - U.S. crude prices fell sharply
on Tuesday, slumping a second straight day and posting the
first monthly decline since May as concerns about faltering
economic growth, weak demand and bulging oil inventories
pressured crude and gasoline futures.
                                
 The expectation that Hurricane Earl will brush the U.S.
East Coast and squelch gasoline demand during the approaching
Labor Day holiday weekend added to the bearish sentiment.
                                
 U.S. October crude <CLc1> fell $2.78, or 3.72 percent, to
settle at $71.92 a barrel, trading as high as $74.73 and
slumping as low as $71.53 in post-settlement trading.
                                
 For the month, U.S. crude ended down $7.03 a barrel, or 8.9
percent, the biggest monthly percentage loss since May, when
oil prices hit a 2010 low of $64.24 on May 20, the weakest
front-month price since July 2009, after reaching the 2010 peak
of $87.15 on May 3.
                                
 On Tuesday, October Brent <LCOc1> crude dropped $1.96 to
settle at $74.64 a barrel.
                                
 "End-of-the-month volatility has pulled down crude futures
today, with the expiration of refined product futures adding
pressure," said Mark Waggoner, president at Excel Futures in
Bend, Oregon.
                                
 The market was awaiting weekly oil inventory data from the
American Petroleum Institute released after oil's settlement.
With prices already down sharply, there was little reaction to
API data that showed crude stocks rose 4.8 million barrels in
the week to Aug. 27. [API/S]
                                
 The API said gasoline stocks slipped 589,000 barrel and
distillate inventories fell 1.9 million barrels.
                                
 Analysts in a Reuters survey ahead of the API report
expected a 1.1 million-barrel gain in crude stocks. Gasoline
stocks were seen down 200,000 barrels, with distillate stocks
expected to be up 1.2 million barrels. [EIA/S]
                                
 Adding to the bearish sentiment was a report from the
Institute for Supply Management-Chicago that showed business
activity in the U.S. Midwest slowed in August. [ID:nN31183001]
                                
 STORM WATCH
                                
 While no U.S. landfall had been projected for Hurricane
Earl, authorities voiced concern about a possible "close
approach" to the North Carolina coast. [ID:nN31228995]
                                
 The U.S. National Hurricane Center was monitoring two other
tropical systems in the Atlantic. Computer models showed no
immediate threat to Gulf of Mexico infrastructure.
[ID:nN31235236]
                                
 "Earl being expected to brush the East Coast pushed oil
down today because it may wipe out the expected Labor Day
demand. And the MasterCard (gasoline) demand data reinforced
the weak demand scenario," said Phil Flynn, analyst at PFGBest
Research in Chicago.
                                
 Monday's U.S. Labor Day holiday is the traditional end of
the summer driving season and MasterCard said that U.S. weekly
retail gasoline demand fell 3.1 percent last week from the
previous week and managed only a 0.7 percent rise versus the
year-ago period. [ID:nN31257975]
                                
 Expiring U.S. September gasoline <RBU0> fell 4.47 cents to
settle at $1.8894 a gallon. September heating oil <HOU0> also
went off the board, dropping 3.08 cents to $1.9944 a gallon.
                                
 The outlook for the U.S. economy would have to deteriorate
"appreciably" to spur fresh support from the Federal Reserve,
minutes of the central bank's last policy meeting released on
Tuesday said. [ID:nN31253959]
                                
 Traders noted that oil markets were already in a cautious
mood ahead of Friday's August U.S. nonfarm payrolls report.
                                
 "The Fed is clearly concerned about the state of the
recovery, if there still is one, and is looking for effective
constructive measures," said John Kilduff, partner at Again
Capital LLC in New York.
                                
 Crude failed to get a boost from the weak dollar, which
fell against the yen and the euro. [USD/] The dollar index
<.DXY> also weakened. A weak dollar can boost oil prices
because it makes dollar-denominated oil cheaper for buyers
using other currencies.
                                
 U.S. stocks seesawed before ending mixed, with the S&P 500
and Dow industrials ending the day up slightly, while Nasdaq
indexes slipped. The S&P 500 fell 4.7 percent in August. [.N]
                                
 Stocks had been supported intraday by consumer confidence
and home price reports helped soothe some investor anxiety
about the strength of the economy.
 (Additional reporting by Gene Ramos in New York, Alex Lawler
in London, Florence Tan; Editing by Marguerita Choy)