By Maryelle Demongeot

SINGAPORE, June 10 (Reuters) - Oil raced towards US$71 (S$103.06) a barrel on Wednesday, after settling above $70 for the first time in seven months on a larger-than-expected fall in crude oil stocks and a forecast that falling oil demand may have bottomed.

The American Petroleum Institute (API) reported a deep fall of 6 million barrels in US crude stocks in the week ended June 5, beating analysts'expectations for a 400,000-barrel draw, and steady products inventories versus forecast builds.

US light crude for July delivery rose 84 cents to $70.85 a barrel by 0203 GMT, off an earlier high of $70.94 after ending Tuesday at $70.01, the first settlement above $70 in seven months.

London Brent crude gained 55 cents to $70.17.

"The stats are another sign that we may have reached bottom. Relatively speaking, it seems that things are getting better and it should be bullish from there," said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo.

Oil has more than doubled since the low $30s hit this winter on optimism of an economic recovery that would lead to higher oil demand, although prices are still more than 50 percent below a record high of $147.27 touched last July.

Strengthening hopes of a recovery, the US Energy Information Administration (EIA) on Tuesday raised its 2009 demand forecast by 10,000 barrels per day in its June outlook, the first time since September that it has increased the demand estimate in its rolling monthly forecast.

Prices could gain further on Wednesday if the EIA confirms the API's fall in crude inventories, in its own data on Wednesday to be released at 1430 GMT.

"Any EIA reinforcement tonight of the already released API inventory data will serve to underpin $70 as support," Jonathan Kornafel, Asia director of Hudson Capital Energy, said in a morning report.

A Reuters expanded inventory poll from 13 analysts called for a 400,000 barrel drawdown in crude stocks, a 1.4 million barrel build in distillate stocks and an 800,000 barrel increase in gasoline stocks.

Refinery utilization was seen rising 0.3 percentage point to 86.6 percent of capacity The US dollar, whose weakening contributed to pushing prices up $1.92 on Tuesday, steadied on Wednesday after investors questioned whether the economy had improved enough to justify talk of a Federal Reserve rate hike by year-end.

Investors tend to flock to commodities as a hedge against inflation when the dollar falls. -Reuters