UPDATE 2-Oil holds above $63 as OPEC discusses output

                                
 * Oil eases on concerns about U.S. debt but above $63
                                
 * Saudi Arabia says world economy can handle $75-$80 oil
                                
 * OPEC meets in Vienna, output targets seen steady
                                
 
                                
 (Updates throughout, previous SINGAPORE)
                                
 By Chris Baldwin
                                
 LONDON, May 28 (Reuters) - Oil slipped on Thursday as global
markets dropped on government debt worries but held firmly above
$63 a barrel as OPEC met in Vienna to discuss the group's oil
output and what price the world could afford to pay.
                                
 U.S. crude oil for July delivery <CLc1> was two cents up at
$63.47 a barrel by 0925 GMT. The contract settled $1.00 higher
at $63.45 on Wednesday, after having touched $63.82, its highest
level since mid-November.
                                
 London Brent crude <LCOc1> shed seven to $62.43.
                                
 Oil has climbed back from a low of $32.40 last December to a
six-month high above $63 on Wednesday, after Saudi Arabia's Oil
Minister Ali al-Naimi told reporters in Vienna the world was
ready to cope with a barrel price range of $75-$80.
                                
 "The price rise is a function of optimism better things are
coming in the future," Naimi told reporters. [ID:nLR938320]
                                
 Naimi said OPEC, which has already agreed to cut 4.2 million
barrels per day of oil from the market in a bid to support
prices, did not need to change its output policy.
                                
 But concerns about the debt burden facing countries trying
to spend their way out of the economic downturn scared investors
on Thursday in spite of optimism from President Barack Obama
that the U.S. economy was past the worst.
                                
 "It's safe to say we have stepped back from the brink,"
Obama told a fundraiser in Beverly Hills. "There is some calm
that didn't exist before." [ID:nN27289908]
                                
 European shares opened lower on Thursday, tracking a decline
on Wall Street, after a spike in Treasury yields triggered a
sell off in equity markets.[.EU]
                                
 
                                
 EQUITY CORRELATION
                                
 Analysts said oil's recent highs have followed resurgent
global equity markets in spite of weak underlying fundamentals
of excess supply and poor demand for refined petroleum products.
                                
 "In the near term, oil will likely retain its high level of
correlation in daily return with equities, but equally with
(foreign exchange) as long as oil is kept off the market in
storage," said BNP Paribas' senior oil analyst Harry
Tchilinguirian.
                                
 "When that oil starts coming back, depressing the prompt, we
can expect that relation to loosen."
                                
 Industry officials and analysts estimate a range of 100
million to 130 million barrels of crude oil stored at sea in 50
to 53 vessels, as sellers profit on oil for prompt delivery
being cheaper than for future delivery.
                                
 The American Petroleum Institute said in its report after
oil markets closed on Wednesday that crude stocks fell 2.8
million barrels to 364.7 million barrels last week.
                                
 "I think the stark draw in the APIs during the night has
stopped oil from going lower," Bache Commoditiews broker
Christopher Bellew said.
                                
 A Reuters poll of 11 analysts showed U.S. crude inventories
likely fell around 700,000 barrels last week. [EIA/S] The U.S.
Energy Information Administration will release its
holiday-delayed weekly report on Thursday at 1500 GMT.
 (Editing by James Jukwey)