UPDATE 9-Oil falls on weak U.S. econ data, demand worries

* U.S. housing starts, manufacturing output drop

* Dollar index slips after early strength, curbs oil loss

* Coming Up: EIA oil data, 10:30 a.m. EDT Wednesday (Recasts, updates prices, market activity following API data, paragraphs 8, 15-20)

By Robert Gibbons

NEW YORK, May 17 (Reuters) - Oil prices slipped on Tuesday in choppy trading as weak economic data fueled concerns about demand that have contributed to crude's 15 percent decline so far in May.

The dollar index <.DXY> seesawed with the euro and the greenback's weakness late helped oil pare losses, traders and brokers said.

Oil felt pressure from news that U.S. housing starts and building permits fell in April and factory output slumped. [ID:nN17138040]

U.S. gasoline futures slid sharply early, then pared losses after tumbling nearly 5 percent the previous session on the receding threat to refineries from flooding in the Mississippi River delta.

Brent crude for July delivery dropped 85 cents to settle at $109.99 a barrel, bouncing after earlier falling as low as $108.07.

U.S. crude for June delivery slipped 46 cents to end at a 12-week low settlement of $96.91 a barrel, having dropped as low as $95.02 on the day that June crude options expired on the New York Mercantile Exchange.

Traders and analysts noted open interest concentrated on puts at the June crude option $95 strike price.

U.S. crude trading volumes were 10 percent above the 30-day average, more robust than Brent volumes that were about 4 percent below.

"With the housing numbers coming in soft and industrial production coming in (near) flat, there is some concern there will be a double dip in the housing slump and on a broader scale for the economy as a whole," said Rob Kurzatkowski, futures analyst with OptionsXpress in Chicago.

"We're seeing further liquidation on the precious metals, and that's offering some outside pressure on the oil market as well."

Copper ended lower for the first time in four sessions as the weak U.S. economic data weighed on the industrial metal. [MET/L] Weak U.S. retail and corporate earnings and the dollar's early strength pressured gold. . [GOL/]

Concerns about the European debt crisis also weighed on oil, as investors watched to see if peripheral economies such as Greece and Portugal will be able to meet their obligations.

The euro bounced and rose against the dollar in choppy trading, but remained vulnerable on concerns Greece might restructure its massive debt. The dollar index <.DXY>, measuring it against a basket of currencies, edged lower late after earlier being bolstered by the yen's weakness. [USD/]

A stronger dollar can pressure dollar-denominated oil prices by raising the price for consumers using other currencies and pulling investment from commodities to less risky markets.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on commods/dollar correlation:

http://r.reuters.com/wex39r

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

U.S. OIL INVENTORIES

U.S. crude, gasoline and heating oil futures turned higher in post-settlement trading after a report from the industry group American Petroleum Institute showed gasoline and total distillate stocks fell last week.

Crude stocks rose 2.7 million barrels, gasoline stocks fell 676,000 barrels and distillates dropped 2.8 million barrels, the API said. [API/S]

Ahead of the API report, a Reuters survey of analysts had forecast U.S. crude inventories would be up for the fourth straight week, but only by 1 million barrels. [EIA/S]

Gasoline stocks were seen up 800,000 barrels and distillate stockpiles up only 700,000 barrels.

The government's inventory report from the U.S. Energy Information Administration will follow at 10:30 a.m. EDT (1430 GMT) on Wednesday.

"The report on its face is neutral, but the product draws continue to impress, especially given the retail price point," said John Kilduff, partner at Again Capital LLC in New York.

Rising water levels on the Mississippi River looked less likely to hurt eight refineries in Louisiana after U.S. Army engineers began opening flood gates, helping U.S. gasoline futures settle lower on Tuesday.

The gasoline crack spread , or profit margin for refiners, pulled back more than $3 to just below $26 a barrel, after pushing above $40 on May 10.

U.S. retail gasoline demand fell last week compared with a year ago, but was up versus the previous week, a report from MasterCard Advisors' said on Tuesday. [ID:nN9E7G400O] (Additional reporting by Gene Ramos in New York, Emma Farge and Simon Falush in London and Florence Tan in Singapore; Editing by John Picinich)