UPDATE 8-Oil slides as China hikes rates, dollar rises

* China rate hike could slow economy, curb oil demand

* Dollar strengthens broadly, pressures oil

* Coming up: EIA inventory data, 10:30 a.m. EDT Wednesday

(Updates with API inventory data paragraphs 15-18)

By Robert Gibbons

NEW YORK, Oct 19 (Reuters) - Oil fell more than 4 percent to below $80 a barrel on Tuesday, the biggest drop in more than eight months, as China hiked interest rates to cool its booming economy.

China's rate rise, its first since 2007, is aimed at curbing inflation and raised concerns about demand growth for commodities and strengthened the dollar.

"This dollar-driven move has pulled down prices across the board in the oil markets," said Tom Knight, a trader at Truman Arnold in Texarkana, Texas.

U.S. crude for November delivery fell $3.59, or 4.32 percent, to settle at $79.49 per barrel, the biggest one-day percentage dive since early February.

A day ahead of the U.S. November contract's expiration and before release of U.S. oil inventory reports expected to show stockpiles rose last week, U.S. December crude also dropped more than 4 percent, settling at $80.16 a barrel.

Crude oil trading volume was near 790,000 lots on Tuesday afternoon, just above the 30-day average of 768,063 lots, according to Reuters data.

In London, ICE Brent December crude fell $3.27, or 3.88 percent, to settle at $81.10 a barrel.

The specter of China's dynamic economic growth slowing pressured oil and other commodity prices and sent investors to the safe-haven dollar to cut risk exposure. The dollar index <.DXY> was on track for its biggest daily rise in two months and its inverse correlation to oil prices rose to the highest in about a month.

The dollar had already received lift late on Monday from comments by U.S. Treasury Secretary Tim Geithner that the United States would not engage in competitive currency devaluation. [ID:nN18291636]

A stronger dollar can pressure oil prices by making dollar-denominated oil more expensive to users of other currencies and by pulling investment into foreign exchange markets from commodities that are viewed as riskier bets.

"(The Chinese rate move) could imply a little bit of softer growth in commodities demand," said UniCredit's Jochen Hitzfeld.

Copper retreated from 27-month highs on top metals consumer China's interest rate hike. [MET/L] Gold also fell as investors reacted to the stronger dollar. [GOL/]

Economic concerns sent U.S. equities lower on Tuesday, as consumer-sensitive Apple and IBM fell after their results disappointed investors. [.N]

"(Crude) could rebound and make this up tomorrow for no apparent reason. The fact that the market looks elsewhere and not fundamentals shows that the premium associated with exogenous elements will wax and wane and volatility will stay with us," said Mike Fitzpatrick, vice president at MF Global in New York.

U.S. OIL INVENTORIES

Investors focusing on fundamentals got a snapshot of U.S. inventories when the industry group the American Petroleum Institute released data late Tuesday showing crude stocks rose 2.3 million barrels last week. [ID:nEAP104J00]

Crude futures prices extended losses slightly after the report in post-settlement trading.

The API report showed gasoline stocks fell only 83,000 barrels and distillate inventories fell only 854,000 barrels, both less than analyst expectations.

Ahead of the report, a Reuters analyst survey yielded a forecast for crude stocks to be up 1.9 million barrels, with gasoline stocks expected to be down 1.3 million barrels and distillates down 800,000 barrels. [EIA/S]

The more closely watched oil inventory report from the U.S. Energy Information Administration is set for release at 10:30 a.m. EDT (1430 GMT) on Wednesday.

Another measure of fundamentals was mixed on Tuesday, as MasterCard reported U.S. retail gasoline demand rose 2.7 percent last week from the prior week, but dipped 0.9 percent from the year-ago period and was lower on a four-week average than the same period in 2009. [ID:nNLLJLE6KS]

Energy investors continued to gauge the impact of the strike at France's Fos-Lavera oil port that has shut refineries and forced the French government to tap emergency fuel reserves. [ID:nLDE69H0CV] [ID:nPISJLE6AG] (Additional reporting by Gene Ramos in New York, Zaida Espana and Isabel Coles in London and Alejandro Barbajosa in Singapore; Editing by David Gregorio)

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GLOBAL MARKETS-Dollar rallies, stocks slide on China rate move

* China's rate hike takes shine off global risk appetite

* Dollar gains, commodities slip after China's rate move

* Stocks slide, hurt by China, poor Apple and IBM results

* US Treasuries rally as stock losses spur safe-haven bid (Adds close of U.S. markets)

By Herbert Lash

NEW YORK, Oct 19 (Reuters) - World stocks and commodity prices fell sharply on Tuesday after China, the engine of growth in an anemic global recovery, raised interest rates for the first time since 2007 to curb its booming economy.

Wall Street also was hit by fears that U.S. banks might be on the hook for billions of dollars in souring mortgage bonds, driving stocks to post their biggest loss in two months. For details see: [ID:nN19153115]

The dollar rallied broadly on China's unexpected 25-basis-point rate increase, a move that could mark the start of a more aggressive phase of monetary tightening in the world's fastest-growing major economy. [ID:nSGE69I0HU]

Crude oil prices slid more than 4 percent, its biggest single-day percentage decline since February, while copper tumbled from 27-month highs and gold shed as much as 2.7 percent, set for its largest one-day drop since early July.

The People's Bank of China said it would lift its benchmark one-year lending and deposit rate, effective on Wednesday, in a move analysts said may suggest Beijing and Washington are working together to ease rising currency tensions.

Traders cut their exposure to risk by taking refuge in U.S. government debt and selling the euro and commodity-sensitive Australian dollar. [ID:nN19134544]

The Australian dollar, which last week rose above parity with the U.S. currency for the first time since 1983, was hit hardest, slipping 1.5 percent. The euro and sterling also fell sharply.

Investors feared China's quarter-percentage point rise in interest rates could dampen Chinese and global growth while slowing China's voracious demand for commodities. [ID:nBJI002412]

"China's rate increase instantaneously pushed people to take risk off the table," said Boris Schlossberg, director of research at GFT Forex.

China "is trying to clamp down on growth and that's going to reflect badly on Australia, on Germany, on much of the world economy as it readjusts to the idea that Chinese growth may not be as torrid as expected," Schlossberg said.

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