UPDATE 1-Oil holds above $74 on US inventory drop, dlr weighs

                                
 * U.S. crude, distillates, gasoline stocks fall, API said
                                
 * Dollar strength cap gains on oil, commodities
                                
 * Hopes for U.S. economic growth on strong home sales
 (Updates prices)
                                
 By Judy Hua
                                
 SINGAPORE, Dec 23 (Reuters) - Oil held steady above $74 on
Wednesday, buoyed by industry data showing a sharp drawdown in
U.S. crude stocks and an unexpected fall in gasoline supply,
but the firm dollar limited gains.
                                
 Crude inventories in the world's biggest oil consumer fell
3.7 million barrels last week, against analysts' expectations
of a 900,000-barrel drop, the American Petroleum Institute
(API) said on Tuesday. [ID:nAPI000032]
                                
 U.S. crude for February <CLc1> edged up 6 cents to $74.46 a
barrel by 0713 GMT in thin pre-holiday trade, after rising 68
cents on Tuesday. Prices have gained almost $6 since hitting a
more than two-month low of $68.59 on Dec. 13.
  London Brent crude for February <LCOc1> rose 2 cents to
$73.48.
                                
 "The API data (is bullish) and the market anticipates EIA
data tomorrow to show resonably significant drawdown in the
crude stocks as well as in some of the oil products stocks,"
said Ben Westmore, commodities economist at National Australia
Bank.
                                
 "That's sort of positive short-term sentiment."
                                
 Gasoline inventories fell 1.1 million barrels as imports
also slipped, API data showed, after a Reuters poll forecast a
1.2 million-barrel build. [ID:nN22107064]
                                
 Inventories of distillate fuels fell by just 745,000
barrels, against forecasts for a 1.9 million-barrel drop,
despite cold weather in the U.S. Northeast, the biggest heating
oil market in the world. Total U.S. heating oil inventories
fell by 993,000 barrels. [EIA/S]
                                
 The U.S. Energy Information Administration's (EIA) weekly
report is due at 10:30 a.m. EST (1530 GMT) on Wednesday.
                                
 OPTIMISM ON ECONOMY
                                
 Oil's recovery was curbed by the strengthening dollar,
which hit a two-month high versus the yen on positive U.S.
economic news and the steepest yield curve on record. [USD/]
The dollar also held firm against a currency basket. <.DXY>
 Oil prices have often retreated this year when the dollar
firms, making crude more costly for holders of other
currencies. A stronger dollar can also signal investors putting
funds into safe havens and away from assets deemed more risky,
including commodities.
                                
 Gold edged up on bargain hunting on Wednesday after the
price fell to its lowest in seven weeks the previous day, but a
firmer U.S. dollar was likely to cap gains. [GOL/]
                                
 Further optimism about an economic recovery was reflected
by surprisingly strong sales of previously owned U.S. homes,
which boosted Western stock markets, and Asian equities
followed suit. U.S. existing home sales jumped 7.4 percent in
November to an annual rate of 6.54 million units, the fastest
pace since February 2007. [ID:nN22392364]
                                
 "Obviously there is some macro indicator in the United
States that also looks quite supportive as it continues to show
the recovery is in good feel," said Westmore.
                                
 As expected, the Organization of the Petroleum Exporting
Countries (OPEC) left output policy unchanged with the implied
target for members' output, excluding Iraq, at 24.84 million
barrels per day (bpd).
                                
 But concerns remain about compliance and the organisation's
ability to persuade members to stick to quotas. [ID:nLDE5BL0Y4]
[ID:nLDE5BL0I9]
 (Editing by Ramthan Hussain)