Wires

UPDATE 2-Oil slips as trade concerns outweigh drop in inventories

Aaron Sheldrick

* U.S. crude stocks drop by 700,000 barrels

* Investors concerned about hitch in trade war talks

* Graphic on U.S. inventories: https://tmsnrt.rs/2XkQF8e (Adds Fed meeting, updates prices)

TOKYO, Oct 30 (Reuters) - Oil prices fell on Wednesday as a possible delay in resolving the U.S.-China trade war overshadowed a drop in U.S. crude inventories.

Brent crude was down 7 cents, or 0.1%, at $61.52 a barrel by 0735 GMT, having fallen to as low as $61.32.

U.S. West Texas Intermediate (WTI) crude was down 15 cents, or 0.3%, at $55.39 a barrel after reaching a low of $55.16.

U.S. crude inventories fell 708,000 barrels in the week ended Oct. 25 to 436 million, compared with analysts' expectations for an increase of 494,000 barrels, according to data from the industry group, the American Petroleum Institute.

"The market has largely ignored the decline in U.S. crude inventories and assumed the demand side will remain weak in the foreseeable future as the global cyclical slowdown deepens," said Margaret Yang, market analyst at CMC Markets in Singapore.

"Fading optimism over a U.S.-China phase-one deal further weighed on oil prices as trade risks are set to rise," she said.

The United States and China were continuing to work on an interim trade agreement, but it may not be completed in time for U.S. and Chinese leaders to sign it next month, a U.S. administration official said.

The latest potential setback in the negotiations stalled a rally in global share markets.

Investors are also awaiting the outcome of the Federal Reserve's two-day policy meeting this week. The Fed looks set later on Wednesday to nudge along a U.S. economy that is being hampered by slowing investment and weak growth overseas. It would be the third cut this year.

A rate cut would help support oil prices as a stronger economy typically implies higher demand for crude, while falling inventories suggest the market is coming into balance.

Russia's deputy energy minister also said on Tuesday it was too early to talk of deeper output cuts by OPEC and its allies, adding to the pressure on the market.

The Organization of the Petroleum Exporting Countries and other producers including Russia - a grouping referred to as OPEC+ - have cut oil output by 1.2 million barrels per day to support prices since January.

In the United States, gasoline stocks dropped by 4.7 million barrels, compared with analyst expectations for a drop of 2.2 million barrels, and distillate stocks were down by 1.6 million barrels, versus an expected fall of 2.35 million barrels.

Still, crude stocks at the Cushing, Oklahoma, delivery hub for WTI rose by 1.2 million barrels, the API said.

(Editing by Jacqueline Wong and Jason Neely)