UPDATE 6-Oil drops to $74 on China concerns

                                
 * Higher reserve ratios for Chinese banks take effect
                                
 * U.S. crude, gasoline stockpiles expected to rise
                                
 * Fed seen leaving interest rates steady 
                                
 * U.S. home prices dip in November - index
                                
 
                                
 (Updates prices)
                                
 By Alex Lawler
                                
 LONDON, Jan 26 (Reuters) - Oil fell to $74 a barrel on
Tuesday after China implemented a clampdown on lending,
rekindling concern that tightening moves by the world's
second-largest oil user may limit demand.
                                
 China's action was a setback for the view that the prospect
of rising Asian demand is more significant than the oil market's
weak current fundamentals, analysts said. The prospect of
Asia-led future demand growth has been a factor in oil's more
than 60 percent gain in the past year.
                                
 "The fundamental link to current prices is weak -- hence oil
prices need at least some general optimism that boom times are
around the corner," said Olivier Jakob, analyst at Petromatrix.
                                
 "That general optimism depends a lot on China's consumption
saving the rest of the world and that will be somewhat
challenged by the Chinese government trying to regulate the
formation of bubbles."
                                
 U.S. oil <CLc1> was down $1.10 at $74.16 by 1430 GMT, having
traded as low as $73.82, the lowest intraday price since Dec.
22. Brent crude <LCOc1> fell 95 cents to $72.74.
                                
 China implemented its planned increase in required reserves
for some banks on Tuesday, sources told Reuters. [ID:nTOE60P04Y]
Asian stocks fell, copper slipped and the dollar gained. [MET/L]
European shares lost ground. [.EU]
                                
 "The Chinese tightening is making people concerned that it
is going to damp down demand, but it won't damp demand by very
much," said Christopher Bellew, a broker at Bache Commodities.
                                
 "The market may be forming a base around these numbers, I
think."

                                
 RECOVERY JITTERS
                                
 Highlighting fears that a global recovery may be sputtering,
South Korea reported weaker-than-expected growth in the fourth
quarter.
                                
 Britain came out of recession in the fourth quarter, but
with a lower growth rate than expected. Standard & Poor's cut
its rating outlook on Japan.
                                
 Economic reports this week have also raised doubts over the
strength of the U.S. recovery. U.S. home prices slipped in
November, according to Standard & Poor's/Case-Shiller indexes on
Tuesday. [ID:nNYS007725]
                                
 The Federal Reserve is not expected to indicate that it will
raise its benchmark rate any time soon. The Federal Open Market
Committee (FOMC), the Fed's policy-setting group, begins a
two-day policy meeting on Tuesday.
                                
 Oil inventories in the United States, the top oil consumer,
are expected to rise further in reports due this week. Crude
stocks probably rose by 1.7 million barrels, a Reuters poll of
analysts showed on Monday. [ID:nN25140701]
                                
 The survey also forecasts gasoline stockpiles probably
climbed 1.4 million barrels and distillates, which include
heating oil and diesel, were predicted to have fallen 1.4
million barrels.
                                
 Industry group American Petroleum Institute issues its
weekly inventory report on Tuesday at 2130 GMT. The government's
Energy Information Administration (EIA) follows on Wednesday.
 (Additional reporting by Alejandro Barbajosa in Singapore;
Editing by Anthony Barker)