CORRECTED - UPDATE 6-Oil drops below $79, hit by demand fears

                                
 * U.S. oil product stocks up more than expected
                                
 * IEA lifts demand forecast, but emphasises economic risk
                                
 * Fall in equities harms sentiment towards oil
                                
 
                                
 (Corrects to "highest seasonal surplus" from highest level
in paragraph 2)
                                
 By David Turner
                                
 London, Aug 11 (Reuters) - Oil fell below $79 on Wednesday,
hammered by a build-up in U.S. product inventories, a nervous
International Energy Agency report and a dive in global equity
markets.
                                
 Gasoline stocks rose to their highest seasonal surplus in at
least a year on Aug. 6, according to the Energy Information
Administration. [EIA/S] An accumulation in inventories can
indicate lower demand.
                                
 Tom Bentz, a broker at BNP Paribas Commodity Futures in New
York, said: "This will give a negative twist to the market. "The
inventories certainly are not going to stop the slide in
prices."
                                
 U.S. crude for September <CLc1> delivery was down $1.81 at
$78.44 a barrel at 1504 GMT. Front-month ICE Brent crude <LCOc1>
fell $1.59 to $78.01 a barrel.
                                
 The market had already fallen sharply before the 1430 GMT
EIA report due to a warning from the International Energy Agency
(IEA) that demand was vulnerable to the risks of an economic
slowdown and to sharp falls in global equity markets.
                                
 As well as a 400,000 barrel rise in gasoline stocks to 223.4
million barrels, the EIA also reported a 3.5 million barrel
increase in distillate stocks. This more than counter-acted the
potentially bullish news of a 3 million barrel fall in crude
inventories.
                                
 The rise in gasoline and distillate stocks was higher than
expected, although so, too, was the fall in crude inventories.
                                
 Earlier in the day, the IEA slightly increased its forecasts
for global crude demand for this year and next in its August
report from the previous month. It warned, however, that if the
global economy proved weaker than expected, any rise in fuel
consumption could be wiped out. [ID:WLA0644]
                                
 A fall in share markets across the world, including the
United States, Europe and Japan, also hit oil by souring
sentiment. <.N225> <.FTEU3> <.SPX> Equities were damaged by
fears over the global economy.
                                
 
                                
 OIL DEMAND
                                
 The U.S. government on Tuesday also modestly boosted its
forecast for global oil demand growth this year and next, saying
that developing countries would drive consumption despite a
slower outlook for the U.S. economy. [ID:nN10130851]
                                
 In China, an industry association forecast an 11 percent
growth in the country's apparent crude demand this year.
However, in July the country's implied oil demand slowed as
expected from double-digit growth in the first half as firms
scaled back refinery output and crude purchases from June peaks.
[ID:nTOE67A02V] [ID:nTOE67A00A]
                                
 Economic growth in China is slowing slightly, although it
remains robust as the government steers credit growth back to
normal. [ID:nTOE67A01A]
 (Additional reporting by Florence Tan; editing by Jane Baird)