(Repeating to add "UPDATE 14" to headline)
* US crude, product inventories down sharply last week-API
* Brent, US crude rally in post settlement trade after API
* Goldman cuts 2012 Brent forecast to $120/bbl from $130
* Coming up: EIA inventory data at 1630 GMT Wednesday (Updates with oil turning positive after API data)
By Matthew Robinson
NEW YORK, Oct 4 (Reuters) - Oil fell 2 percent on Tuesday, dragged down by concerns Europe's debt problems would hurt banks and add further pressure to the global economy.
Brent crude slid into bear market territory, defined as a 20 percent fall from recent highs, as optimism from comments by U.S. Federal Reserve Chairman Ben Bernanke proved fleeting. [ID:nN1E7931F1]
The Fed is prepared to take further steps to help an economy that is "close to faltering," Bernanke said on Tuesday, in his bleakest assessment yet of the fragile U.S. recovery. [ID:nN1E7930IZ]
Fresh concerns about the euro zone crisis came as European officials postponed a vital aid payment to debt-stricken Greece, sending Brent below $100 a barrel in early trade for the first time since August as the gloomy outlook stirred worries over struggling fuel demand. [ID:nL5E7L419D]
"There are concerns that the situation in Europe is going to spread, and Bernanke said that while the Fed stands ready to help us but he was not overly optimistic," said Phil Flynn, analyst at PFGBest Research in Chicago.
"With stocks taking a turn into bear market territory, there are concerns that this signals a turn into recession, and that is not good for oil demand."
Goldman Sachs, which has been typically bullish for commodities, sounded another note of caution as it cut its 2012 forecast for Brent by $10, to $120 a barrel. [ID:nL5E7L41EN]
(Graphic: http://link.reuters.com/qyx24s )
Brent crude for November delivery
U.S. crude futures
Prices found support in post-settlement trading after weekly data from the American Petroleum Institute showed deep drawdowns in crude and refined product inventories, sending Brent up to $101.84 a barrel and U.S. crude to $77.83 by 4:50 p.m. EDT (2050 GMT).
Crude stockpiles fell by 3.1 million barrels in the week to Sept. 30, with gasoline inventories down 5 million barrels and distillates off 2 million barrels, the API data showed.
The market will now await confirmation of the data from the U.S. Energy Information Administration's report, due out early Wednesday. [ID:nEAP104400]
"The data seem to contradict the recent poor demand readings, although, tertiary demand for heating oil ahead of the fall season is not unexpected and may help to skew the numbers," said John Kilduff, partner at hedge fund Again Capital LLC in New York.
Trading volumes were strong, with Brent trading 42 percent over the 30-day average in its heaviest trading day since June while U.S. oil futures traded 18 percent over the 30-day average.
OPEC
Brent could come under further pressure if OPEC member Libya restores output disrupted by the civil war faster than expected. Libya will start pumping crude at two major oilfields in about two weeks, doubling production to 700,000 barrels a day by year-end, the head of its National Oil Corp. told Reuters. [ID:nL5E7L33YY]
Qatar said that while it was closely monitoring the impact of the economic crisis on oil demand, it did not see a need for OPEC to meet before its next scheduled gathering in December. [ID:nL3E7L40D1]
Traders were also watching clashes in the oil-rich Eastern Province of top OPEC crude exporter Saudi Arabia for any signs of a threat to the market. [ID:nL5E7L437Y] (Reporting by Matthew Robinson, Robert Gibbons and Gene Ramos in New York; Zaida Espana in London; Seng Li Peng and Randy Fabi in Singapore; Editing by David Gregorio and Andrea Evans)