* Falls in Asian shares, led by China, prompt drop in oil
* Eyes U.S. oil stocks for direction, demand seen still low
* Sustained economic recovery needs time to take hold
(Updates prices, China comments)
SINGAPORE, Aug 25 (Reuters) - Oil fell below $74 a barrel
on Tuesday, down for the first time in six days as Chinese
shares plummeted on renewed concerns over the economic
recovery, after reaching a 10-month high a day earlier.
Investors are looking to oil inventories in the United
States for direction, with analysts calling for a draw in crude
and gasoline stocks and an increase in distillates.
U.S. crude futures for October <CLc1> fell 54 cents to
$73.83 a barrel by 0645 GMT, after hitting their highest
intraday mark since Oct. 21 at $74.81 on Monday. Brent crude
<LCOc1> lost 57 cents to $73.69.
"The drop is probably due to the decline in equities
markets today," said Tetsu Emori, a fund manager at Tokyo-based
Astmax Co Ltd.
"People are waiting for (U.S.) inventory numbers too.
Market fundamentals are still weak. While crude stocks may have
fallen, those for products are still high. The supply-demand
balance is weak."
An initial Reuters poll showed crude inventories for the
week ended Aug. 21 fell by 900,000 barrels, much smaller than
the unexpected 8.4 million-barrel draw in the week before, as
imports stayed low and refinery utilisation rose.
But forecasters called for a 200,000-barrel rise in
distillate stocks, while gasoline inventories could also have
eased by 900,000 barrels, as demand may have improved on late
summer vacation driving, which would make it the fifth straight
week of falls. []
Data from the American Petroleum Institute will be released
at 2030 GMT on Tuesday, while the U.S. government data is due
out on Wednesday.
CHINA LEADS ASIA SHARES LOWER
While the race towards $75 over the past week was spurred
by the equities rally, with the Dow Jones index <> also
briefly touching 10-month highs on Monday, oil prices were hit
by falling Asian stocks on Tuesday, led by China.
The Shanghai stock index <> plunged more than 5
percent after Premier Wen Jiabao said Beijing would keep its
monetary policy loose as the economy faces new difficulties,
including trouble boosting domestic consumption, while Hong
Kong stocks <> lost almost 2 percent.
Chinese shares extended their fall despite optimistic
remarks from a senior government economist who said investors
had over-reacted to recent talk of monetary policy fine-tuning
and that the sell-off in the stock market would be short-lived
as the recovery in China's economy was solid. []
Also sounding upbeat, an official with the State
Administration of Foreign Exchange said China was likely to see
rising capital inflows over the rest of this year as its
economy recovers. []
Commodities markets have closely tracked equities indexes
in recent months, as dealers view stocks as a lead indicator of
economic performance.
It is too early to say the economy is on a strong footing
and it would take another six months to be sure that the
recovery is on track, Astmax's Emori said.
He saw $75 as a key resistance level. "Over $75, there is
no reason to buy under current fundamentals."
Oil and commodities traders will be keeping their eyes on
U.S. housing, consumer confidence and retail sales data due
later on Tuesday as pointers to the health of the world's
biggest economy.
As Asian shares fell, the dollar eased against the yen
<JPY=> as worries returned over the state of U.S. consumer
confidence.
(Reporting by Ramthan Hussain; Editing by Clarence Fernandez)
