* China interest rate hike weighs on oil prices
* US crude stocks fell more than expected last week - API
* Coming up: EIA oil data, 10:30 a.m. EDT Thursday (Updates with API inventory data and market reaction, paragraphs 8-12)
By Robert Gibbons
NEW YORK, July 6 (Reuters) - Oil prices settled near flat on Wednesday, buffeted in low-volume trade as an interest rate hike by China and Europe's debt woes kept demand concerns in focus ahead of weekly reports expected to show a drop in U.S. crude stocks.
China's rate rise, the third in 2011, reinforced concerns about demand, especially in the short term, and the late Tuesday cut of Portugal's credit rating by Moody's underlined worries over the sputtering global economy.
"I think the market accepts that China is making a concerted attempt to rein in inflationary forces through use of interest rates, so it's short-term bearish for commodity usage but medium-term, it's supportive if controlled growth is managed," Mark Thomas, head of energy Europe at Marex, said.
Brent futures for August
U.S. crude
Trading volume remained weak after Monday's U.S. Independence Day holiday, helping cause volatility, and Brent and U.S. crude stayed on pace to trail 30-day averages.
U.S. OIL INVENTORIES
U.S. crude prices turned higher and Brent extended gains in post-settlement trade after the industry group American Petroleum Institute reported crude stocks fell 3.2 million barrels last week in the United States. [API/S]
Gasoline stocks fell 1.9 million barrels and distillate stocks fell 1.6 million barrels, the API said.
Crude stocks were forecast to be down, but only 2.3 million barrels, according to a Reuters survey of analysts completed earlier on Wednesday. [ID:nN1E7651FO]
Gasoline stocks were expected to be little changed, up 100,000 barrels and distillate stocks were expected to have posted a 700,000-barrel gain.
The government's inventory report from the U.S. Energy Information Administration's will follow on Thursday at 11 a.m. EDT (1500 GMT).
Earlier, a MasterCard report showed U.S. retail gasoline demand fell last week from a year ago as prices remained above where they had been in the same period in 2010. But demand was up versus the previous week. [ID:nN1E7651AO]
Growth in the U.S. services sector slipped in June, but the report from the Institute for Supply Management's steady employment reading was viewed favorably ahead of Friday's key U.S. June jobs report that is expected to show nonfarm payrolls rose modestly. [ID:nN1E7650H8] [ID:nN1E7640U2]
Supportive to oil, according to brokers and analysts, was Tuesday's news of an unexpectedly mild reduction in Saudi official selling prices, viewed as an indication that OPEC's top exporter was not moving to push prices lower.
The International Energy Agency's coordinated release of consuming nations' oil reserves also was being viewed as insufficient and an ineffective tool to pull prices lower.
Worries about inflation increased gold's attraction as a safe-haven play, pushing it to a two-week high. [GOL/] Analysts and brokers said oil's appeal as a store of value against shaky currencies limited its losses.
"While China's rate hike and Europe's problems are bearish, oil gets caught up in the flight-to-quality trade and, like gold or silver, oil is used to hedge against inflation," said Phil Flynn, analyst at PFGBest Research in Chicago.
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WTI 24-hour technical outlook: http://r.reuters.com/qam52s
Brent 24-hr technical outlook: http://r.reuters.com/ram52s
Column-Saudis not serious about cutting oil price
[ID:nL3E7I607E]
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LIBYA AND MIDDLE EAST TURMOIL
Libya's conflict and turmoil in Yemen and Syria continue to demand investors' attention.
Much of Libya's state-owned oil tanker fleet remains anchored because of cash flow issues and rebels took control of the village of Al-Qawalish, south-east of Tripoli, after a six-hour battle. [ID:nL6E7HT1DU] [ID:nLDE7650SQ]
Pirates fired a rocket-propelled grenade into a fuel oil tanker near the Yemeni port of Aden, but the vessel and its cargo were recovered, the ship manager said. [ID:nL6E7I616G]
Syrian forces rounded up dozens of people around Hama, a day after killing 22 people, activists said. [ID:nLDE7650XQ] (Additional reporting by Gene Ramos and Jeanine Prezioso in New York, Simon Falush and Ikuko Kurahone in London; Editing by Dale Hudson and Lisa Shumaker)