Oil fell more than 7 percent to $42 per barrel on Wednesday on further signs of weak global demand and rising inventories in top consumer the United States.

U.S. government data showed crude stocks in the world's largest energy consumer rose 700,000 barrels last week, while overall products demand over the past four weeks dropped 2.1 percent against last year's levels.

But gasoline demand rose further as lower pump prices encouraged more driving. Gasoline stocks tumbled 3 million barrels. Distillate demand fell 6.1 percent over the past four weeks from last year, with stocks off 2.1 million barrels last week.

It looks like there's a genuine rebound in gasoline demand against a backdrop of extremely weak demand overall, said Antoine Halff, First Vice President of Research at Newedge Group in New York.

U.S. crude traded down $3.48 to $42.23 a barrel by 2:23 p.m. EDT, while London Brent crude fell $2.39 to $41.57 a barrel.

The U.S. inventory report came after No. 2 consumer China showed a surprise 15 percent drop in imports in February, as oil companies scaled back purchases due to high inventories and low demand. The fall came after an 8 percent drop in January.

The Chinese crude data was really quite poor, and that's stalled any move toward $50 a barrel, Sucden Financial trader Robert Montefusco said.

Prices are going to struggle to get a great deal higher given the extent of the economic problems we're seeing in the world.

German manufacturing orders fell 8 percent in January alone, data on Wednesday showed, indicating a deeper than previously expected recession in Europe's largest economy.

The global economic slowdown has weakened crude demand, sending oil prices off peaks over $147 a barrel hit in July and prompting the Organization of the Petroleum Exporting Countries to agree to a series of deep output cuts last year.

The producer group next meets on March 15, with some members calling for another output cut and others insisting greater compliance with current agreements is needed.

Qatar's energy minister Abdullah al-Attiyah told Reuters a further 800,000 barrels per day needed to be removed from the market before OPEC discussed further cuts.

But Algeria, Venezuela and Libya have all raised the prospect of another OPEC supply reduction.

OPEC kingpin Saudi Arabia kept supplies to customers steady for April, according to industry sources.

U.S. Energy Secretary Steven Chu said he will speak to OPEC ministers before their March 15 meeting and tell them that higher crude oil prices will slow the recovery of the world economy.

(Reporting by Matthew Robinson, Robert Gibbons, and Gene Ramos in New York, David Sheppard in London, and Maryelle Demongeot in Singapore; Editing by Marguerita Choy)

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