UPDATE 8-Oil slides as China hikes rates, dollar rises

                                
 * China rate hike could slow economy, curb oil demand
                                
 * Dollar strengthens broadly, pressures oil
                                
 * Coming up: EIA inventory data, 10:30 a.m. EDT Wednesday
                                
 (Updates with API inventory data paragraphs 15-18)
                                
 By Robert Gibbons
                                
 NEW YORK, Oct 19 (Reuters) - Oil fell more than 4 percent
to below $80 a barrel  on Tuesday, the biggest drop in more
than eight months, as China hiked interest rates to cool its
booming economy.
                                
 China's rate rise, its first since 2007, is aimed at
curbing inflation and raised concerns about demand growth for
commodities and strengthened the dollar.
                                
 "This dollar-driven move has pulled down prices across the
board in the oil markets," said Tom Knight, a trader at Truman
Arnold in Texarkana, Texas.
                                
 U.S. crude for November <CLc1> delivery fell $3.59, or 4.32
percent, to settle at $79.49 per barrel, the biggest one-day
percentage dive since early February.
                                
 A day ahead of the U.S. November contract's expiration and
before release of U.S. oil inventory reports expected to show
stockpiles rose last week, U.S. December crude <CLc2> also
dropped more than 4 percent, settling at $80.16 a barrel.
                                
 Crude oil trading volume was near 790,000 lots on Tuesday
afternoon, just above the 30-day average of 768,063 lots,
according to Reuters data.
                                
 In London, ICE Brent December crude <LCOc1> fell $3.27, or
3.88 percent, to settle at $81.10 a barrel.
                                
 The specter of China's dynamic economic growth slowing
pressured oil and other commodity prices and sent investors to
the safe-haven dollar to cut risk exposure. The dollar index
<.DXY> was on track for its biggest daily rise in two months
and its inverse correlation to oil prices rose to the highest
in about a month.
                                
 The dollar had already received lift late  on Monday from
comments by U.S. Treasury Secretary Tim Geithner that the
United States would not engage in competitive currency
devaluation. [ID:nN18291636]
                                
 A stronger dollar can pressure oil prices by making
dollar-denominated oil more expensive to users of other
currencies and by pulling investment into foreign exchange
markets from commodities that are viewed as riskier bets.
                                
 "(The Chinese rate move) could imply a little bit of softer
growth in commodities demand," said UniCredit's Jochen
Hitzfeld.
                                
 Copper retreated from 27-month highs on top metals consumer
China's interest rate hike. [MET/L] Gold also fell as investors
reacted to the stronger dollar. [GOL/]
                                
 Economic concerns sent U.S. equities lower on Tuesday, as
consumer-sensitive Apple <AAPL.O> and IBM <IBM.N> fell after
their results disappointed investors. [.N]
                                
 "(Crude) could rebound and make this up tomorrow for no
apparent reason. The fact that the market looks elsewhere and
not fundamentals shows that the premium associated with
exogenous elements will wax and wane and volatility will stay
with us," said Mike Fitzpatrick, vice president at MF Global in
New York.
                                
 U.S. OIL INVENTORIES
                                
 Investors focusing on fundamentals got a snapshot of U.S.
inventories when the industry group the American Petroleum
Institute released data late Tuesday showing crude stocks rose
2.3 million barrels last week. [ID:nEAP104J00]
                                
 Crude futures prices extended losses slightly after the
report in post-settlement trading.
                                
 The API report showed gasoline stocks fell only 83,000
barrels and distillate inventories fell only 854,000 barrels,
both less than analyst expectations.
                                
 Ahead of the report, a Reuters analyst survey yielded a
forecast for crude stocks to be up 1.9 million barrels, with
gasoline stocks expected to be down 1.3 million barrels and
distillates down 800,000 barrels. [EIA/S]
                                
 The more closely watched oil inventory report from the U.S.
Energy Information Administration is set for release at 10:30
a.m. EDT (1430 GMT) on Wednesday.
                                
 Another measure of fundamentals was mixed  on Tuesday, as
MasterCard reported U.S. retail gasoline demand rose 2.7
percent last week from the prior week, but dipped 0.9 percent
from the year-ago period and was lower on a four-week average
than the same period in 2009. [ID:nNLLJLE6KS]
                                
 Energy investors continued to gauge the impact of the
strike at France's Fos-Lavera oil port that has shut refineries
and forced the French government to tap emergency fuel
reserves. [ID:nLDE69H0CV] [ID:nPISJLE6AG]
 (Additional reporting by Gene Ramos in New York, Zaida Espana
and Isabel Coles in London and Alejandro Barbajosa in
Singapore; Editing by David Gregorio)