UPDATE 4-Oil falls below $78 after U.S. gasoline stocks data

                                
 * Equities drop, dollar rises after US home sales data
                                
 * EIA data shows surprise gasoline build
                                
 * OPEC supplies may increase even without target change
                                
 
                                
 (Updates after EIA, new homes data)
                                
 By Joe Brock
                                
 LONDON, Oct 28 (Reuters) - Oil fell below $78 a barrel on
Wednesday after a U.S. inventory report showed a surprise build
in gasoline stocks, increasing doubts over demand from the
world's largest fuel consumer.
                                
 U.S. crude for December delivery <CLc1> fell $1.56 to $77.99
a barrel by 1506 GMT, after settling up 87 cents on Tuesday, its
first rise in four days. London Brent crude <LCOc1> fell $1.40
to $76.52.
                                
 U.S. crude oil inventories rose less than expected last week
as imports increased but gasoline stockpiles logged a surprise
gain, according to data from the U.S. Energy Information
Administration (EIA) issued on Wednesday. [ID:nN28303034]
                                
 U.S. weekly gasoline stockpiles were up 1.7 million barrels
at 208.6 million barrels, the EIA said, compared with analysts'
forecasts of a draw of 800,000 barrels.
                                
 "Crude stocks were only up 800,000 but the surprise was
gasoline stocks. I think that's what is keeping the market
down," said Dan Flynn, analyst at PFGBEST Research in Chicago.
Oil prices were already under pressure after economic data
showed an unexpected fall in U.S. new home sales, raising new
doubts over the strength of economic recovery. [ID:nN28300451] 
                                
 U.S. and European equity markets fell following the release
of the data as analysts questioned the sustainability of the
markets' seven-month rally. [ID:nN28294193] 
                                
 
                                
 DOLLAR STRENGTH
                                
 The dollar strengthened against a basket of currencies
<.DXY> on Wednesday, adding pressure to oil prices. As the
dollar rises, dollar-denominated crude becomes more expensive
for holders of other currencies.
                                
 "The correlation with the dollar and equities has been going
for some time and is still very much in play, they are all
moving in close step," Simon Wardell, oil analyst at Global
Insight, told Reuters.
                                
 U.S. crude rose more than 1 percent on Tuesday after
alternative data from the American Petroleum Institute data
showed U.S. crude stocks fell by 3.5 million barrels last week,
compared with a forecast for a 1.8 million barrel build in a
Reuters poll.
                                
 The data also indicated, however, that U.S. gasoline and
distillate supplies fell less than expected. [ID:nN27266266] 
                                
 OPEC oil ministers said this week the producer group might
raise output at a meeting in December if prices continued to
rise and global crude stocks fell fast as group members were
nervous about unsustainable gains in oil prices.
                                
 Analysts said they expected OPEC supplies to increase even
without an official change to the group's output target, which
would be likely to moderate oil price rallies.
                                
 "It may be difficult for OPEC to gain consensus on higher
output, without higher prices, but that does not mean that we
will not have higher output," Lawrence Eagles, analyst at JP
Morgan said.
 (Editing by Barbara Lewis and Sue Thomas)