(Refiles to correct day of the week in first paragraph)
SINGAPORE, May 28 (Reuters) - Oil was flat on Wednesday after the previous day's slide as the dollar rose and dealers braced for weakening demand from Asia as some smaller consumer nations began to ease off subsidies by raising local fuel prices.
U.S. crude <CLc1> fell 5 cents to $128.80 a barrel by 0220 GMT, after dropping $3.34 on Tuesday, the first day of New York Mercantile Exchange floor trade following Monday's holiday. Oil has fallen since it hit a record high $135.09 last week.
London Brent crude <LCOc1> rose 3 cents to $128.34 a barrel.
The U.S. dollar rallied on Tuesday and held firm on Wednesday after April U.S. new-home data showed an unexpected rise, triggering a slide in oil, grains and metals by investors who had bought commodities to hedge against inflation. [
]Prices have also been knocked off their peaks by growing signs that consumers are struggling to cope with surging prices.
"Prices are lower because the market is concerned over demand growth," said Makoto Takeda of Tokyo's Bansei Securities.
Soaring fuel costs have triggered a wave of protests around the world, with convoys of trucks converging on London on Tuesday, while in France fishermen blocked road and rail access to the fuel depot of the country's largest oil refinery at Gonfreville, owned by Total.
Oil traders were also watching carefully for signs of falling demand in Asia, where smaller oil consumers Taiwan, Indonesia and Sri Lanka have all recently raised domestic fuel prices due to the soaring cost of subsidies as global prices surge.
Analysts expect the impact of hikes to be limited, and while India is also poised for a modest increase this year, the world's second-largest oil consumer, China, appears set to resist pressure to raise rates until after the summer Olympics. [
]But demand in top consumer the United States and other developed countries, such as Japan, is already under pressure.
DOLLAR EFFECT
Oil prices have jumped nearly 40 percent this year, bolstered by a poor performing U.S. dollar as well as growing fears about the industry's ability to keep pace with demand over the next decade due to stagnating non-OPEC production growth.
Long-term fears have overshadowed relatively healthy inventory levels in big consumers like the United States, where crude stocks were expected to have risen by 100,000 barrels last week while gasoline stocks dipped by the same volume.
Inventories of distillates such as diesel and heating oil, which have been the market's major driver due to robust demand, were set to rise by 800,000 barrels, in line with seasonal trends, a preliminary Reuters poll of analysts showed. [
]The data from the U.S. Energy Information Administration is due on Thursday, a day later than usual due to the holiday.
Rising prices have prompted some oil consuming nations to urge OPEC to ramp up production. Cartel members insist speculators, not a shortfall in supply, are driving prices and say they will not meet ahead of their scheduled meeting in September to discuss output policy. (Reporting by Luke Pachymuthu; Editing by Clarence Fernandez)