Oil dropped 4 percent to below $69 a barrel on Wednesday after U.S. government data showed a big jump in crude and products stockpiles, stirring concerns about demand in the world's top energy consumer.

The U.S. Energy Information Administration reported commercial stockpiles of crude rose 2.8 million barrels in the week to September 18, while analysts had expected them to fall by 1.5 million barrels.

Gasoline inventories increased by 5.4 million barrels to 213.1 million, and distillates gained 3.0 million to hit a fresh 26-year high of 170.8 million, according to the EIA.

U.S. crude fell $3.04 to $68.72 a barrel by 2:11 p.m. EDT. London Brent crude fell $2.89 to $67.64 a barrel.

The report reflects the real state of the economy in which demand for refined products is very weak and so supplies are high, said Phil Flynn, analyst at PFG Best Research in Chicago.

Data from the American Petroleum Institute, released late Tuesday, also showed a build in U.S. crude inventories.

The global recession has battered demand in the United States and other big consumer nations, helping to push crude off record highs near $150 a barrel struck in July 2008 to below $33 a barrel in December.

Prices have since rebounded on signs of an economic turnaround, with oil markets keeping a close eye on equities markets and macroeconomic data.

The fall in crude oil weighed down U.S. stocks for most of the day but equities turned higher Wednesday afternoon after the U.S. Federal Reserve said the U.S. economy was in recovery.<.N>

(Reporting by Rebekah Kebede, Matthew Robinson, Gene Ramos, and Robert Gibbons in New York; Joe Brock in London)