Oil falls toward $70 after China interest rate hike

TOKYO, Apr 28 (Reuters) Oil fell towards a barrel on Friday, deepening a four-day drop from a record high, as China unexpectedly lifted interest rates in a move that could dampen strong demand from the world's second largest oil consumer.

U.S. crude for June delivery was trading 29 cents down at .68 a barrel by 0255 GMT, adding to the previous day's 96-cent slump and taking losses to 6 percent from a record .35 on Monday. London Brent crude fell 26 cents to .65.

China raised interest rates on Thursday for the first time in 18 months, increasing its benchmark one-year lending rate to 5.85 percent from 5.58 percent, to cool an economy described as a ''bit hot'' by its central bank chief Zhou Xiaochuan on Friday.

Any further tightening steps will depend on how the economy performs, said an assistant central bank governor on Friday.

''It's China's rate increase that is pushing down the market,'' said Naohiro Niimura, the vice president of derivatives unit at Mizuho Corporate Bank.

''But problems related to geopolitical risks like Iran and Nigeria are still there. The floor should be around .'' Traders will turn their attention to a U.N. Security Council meeting later on Friday, where the world's nuclear watchdog is likely to confirm Iran has flouted demands to stop enriching uranium.

The report by International Atomic Energy Agency chief Mohamed ElBaradei, at the end of a 30-day council deadline, could set the wheels in motion toward sanctions, raising stakes in a row that oil traders fear could curtail exports from the world's fourth-biggest exporter.

The market has still fallen heavily from record levels this week, as worries eased over potential summer gasoline shortages in top consumer the United States after mid-week data showing a smaller-than-expected drop in gasoline inventories as refiners increased production and demand slowed.

The possible relaxation of new clean-burning gasoline regulations this summer also helped cool surging prices, which remain 16 percent up this year.

The International Energy Agency does not expect oil prices to fall from current levels in the next one or two years, Chief Economist Fatih Birol said on Thursday.

Oil cartel OPEC has promised to keep pumping at high rates but says it is powerless to bring down prices.

However, a U.S. Senate panel on Thursday approved legislation that would allow the U.S. government to sue OPEC for price fixing by revoking sovereign immunity of its members, less than a week before a visit to Washington of the cartel's most influential official, Saudi Oil Minister Ali al-Naimi.

The so-called ''NOPEC'' provision must be approved by the full Congress and President George W. Bush before taking effect. The White House quietly opposed a similar measure last year and has not yet indicated how it feels about this latest version.

REUTERS CS PM0929