Oil held steady on Tuesday ahead of an OPEC meeting, with the firmer dollar countering an expected fall in crude and distillate inventories in the United States along with the sustained strong demand in China.

The U.S. currency rose to its highest versus the yen since late October as investors unwound short dollar positions heading into the year-end.

Crude for the new front-month February contract fell 7 cents to $73.65 a barrel by 10:45 p.m. The January contract expired on Monday down 89 cents at $72.47, pressured by the stronger dollar.

London Brent crude for February shed 22 cents to $72.77.

Trading volumes will be decreased because of the Christmas holidays and OPEC is expected to keep its quota unchanged, therefore there is no specific factors which can drive this market up and down, said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo.

Currency is the most important factor at the moment to move the crude market, he said, adding that prices are expected to move within the range of $72 and $75.

U.S. crude stocks were expected to have fallen by 1.6 million barrels last week, as refiners drew down inventories for year-end tax issues, a drop which would follow declines of more than 3 million barrels in the previous two weeks, an initial Reuters poll found.

Distillate stocks, which include heating oil and diesel, were expected to be down 2.1 million barrels as last week's cold and snow bolsted heating oil demand in the U.S. Northeast, the nation's largest heating oil market, the poll showed ahead of the release of the weekly report by the American Petroleum Institute later in the day.

Weekly data from the government Energy Information Agency (EIA) will be released on Wednesday.

COLD SNAP

Cold weather is a supportive factor, but not enough to make a huge long position at the moment. The inventory is high anyway, Hasegawa said, referring to the 98 million barrels of distillates stored on ships by the end of November, according to International Energy Agency data.

Despite the expected rise in U.S. distillates inventories last week, winter heating fuel stockpiles are still above year-ago levels and more than 3 trillion cubic feet of natural gas are in store.

Colder-than-normal weather is expected across much of the United States from January to March, private forecaster WSI said in its latest winter outlook on Monday.

The current El Nino event and the cold north Pacific will contribute to the unusually cold weather, which will help boost gas and power demand in the large consuming regions, especially in February and March, the forecaster said.

On the supply front, OPEC was set to leave output limits unchanged at a meeting in Angola on Tuesday, officials from the producer group said, and appeared likely to call for improved compliance with existing curbs.

China is also boosting exports to an already well supplied market with gasoline up 71 percent in November from a year ago, while diesel rose 12 times to 390,000 tonnes, as refiners cranked up throughput to new highs, prompting supplies to grow swifter than consumption, which has shown firm recovery in recent months.

Apparent oil demand in China, the world's second-largest energy consumer, rose by a record annual rate of 18.7 percent in November from a year earlier, though the brisk growth is partly due to a low base last year, Reuters calculations based on official data showed on Tuesday.

(Editing by Ramthan Hussain)

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