UPDATE 2-Oil slips from 26-mth high on China rate increase report

                                
 * Weekend offers window for China rate hike-paper
                                
 * Technicals show U.S. crude may touch $90 [ID:nL3E6N701P]
                                
 * Coming Up: U.S. API weekly oil stocks; 2130 GMT

 (Updates prices)	
                                
 By Alejandro Barbajosa	
                                
 SINGAPORE, Dec 7 (Reuters) - Oil fell from a 26-month high 
on Tuesday on reports that China, the world's second-largest 
crude user, will raise interest rates as soon as this weekend, 
dampening investor enthusiasm for commodities driven by Asian 
demand.	
                                
 In a banner headline across its front page, the China 
Securities Journal said that this weekend offered a "sensitive 
window" for a rate rise, which would be the country's second 
in its current tightening cycle. [ID:nTOE6B6003]	
                                
 The report caps weeks of speculation that China will 
restrict monetary policy to control inflation in a booming 
economy that has acted as one of the main engines for energy 
demand growth.	
                                
 U.S. crude for January <CLc1> fell as much as 0.6 percent 
to $88.80 a barrel and was down 21 cents at $89.17 at 0301 
GMT. It touched $89.76 on Monday, the highest intraday price 
since October 2008. ICE Brent <LCOc1> declined 25 cents to 
$91.20.	
                                
 "China interest rates are a driver in the decline of the 
oil market," said Ken Hasegawa, a commodity derivatives 
manager at Japan's Newedge brokerage. 	
                                
 "This is a good space we have for profit taking, selling 
after a two-year high. I cannot justify $90 from a fundamental 
point of view, so it's possible we may reach a turning point 
in the next few days."	
                                
 Money managers raised their net long crude oil positions 
by 20 percent on the New York Mercantile Exchange in the week 
through Nov. 30, according to the Commodity Futures Trading 
Commission (CFTC). [ID:nN03119055]	
                                
 "The latest CFTC positioning data shows that tactical 
investors have covered considerable short positions but have 
also cut some of their long exposure," said Stefan Graber, a 
commodities analyst with Credit Suisse in Singapore. 	
                                
 "This suggests that oil markets are unlikely to break 
higher for now."	
                                
 	
                                
 CHINESE GROWTH	
                                
 China's economy will probably grow about 10 percent next 
year, roughly level with a 9.9 percent pace this year even as 
investment slows, a top government think-tank said. 
[ID:nTOE6B601Z]	
                                
The Chinese Academy of Social Sciences also forecast that 
inflation would remain moderate, with the consumer price index 
rising 3.3 percent next year, up a touch from an expected 3.2 
percent this year.	
                                
 Tuesday's newspaper report said the timing was right for 
China to raise interest rates. Official monthly economic 
indicators, notably the consumer price index (CPI), are likely 
to show an increase in inflationary pressure when released on 
Monday, Dec. 13. 	
                                
 Oil prices on Monday rose after U.S. Federal Reserve 
Chairman Ben Bernanke said the Fed could end up buying more 
than the $600 billion in government bonds it has committed to 
purchase if the economy fails to respond or unemployment stays 
too high. [ID:nN05271909]	
                                
 Cold weather is expected to continue to tighten energy 
supply margins in Europe as below-average temperatures lift 
gas and power demand. [ID:nLDE6B517G]	
                                
 U.S. heating demand was expected to be 16.3 percent above 
normal for the week to Dec. 11, according to the U.S. National 
Weather Service. Heating oil demand was forecast at 16.1 
percent above normal for the same period. [ID:nL3E6N6057]	
                                
 Freezing weather is helping drain U.S. oil inventories. 
The nation's crude stockpiles likely declined last week by 1.5 
million barrels as refiners reduced their imports and used up 
more stored supplies to keep inventories low for year-end tax 
purposes, a Reuters poll of analysts showed. [ID:nN06226217]	
                                
 Stockpiles of distillates including heating oil and diesel 
were forecast down 400,000 barrels, extending drawdowns to the 
11th consecutive week, the poll showed. Gasoline stocks likely 
rose an average 900,000 barrels, up for the third week in a row.	
                                
 The American Petroleum Institute will publish industry 
data on inventories late on Tuesday, followed by government 
statistics from the Energy Information Administration on 
Wednesday.	
                                
 European Union finance ministers meet on Tuesday to 
discuss the EU economy with markets expected to react 
nervously to Monday's decision by euro zone ministers to take 
no new steps to quell the debt crisis. [ID:nLDE6B525H]	
                                
 	
	
 (Editing by Ed Lane)