LONDON (Reuters) – Oil prices steadied on Wednesday near $70 after benign U.S. inflation data calmed fears across commodities markets that record prices were hurting the economy.

U.S. June light crude oil was up 27 cents at $69.80 a barrel by 1043 GMT. London Brent for July delivery was up 20 cents at $70.28.

U.S. economic data on Tuesday showed producer prices, excluding food and energy, rose less than expected last month.

That helped ease concern that record or near-record high commodity prices were fuelling inflation and slowing economic growth.

Earlier this week, commodity prices slumped as investors worried high prices would hit growth and eat into demand for raw materials. "The focus has been on demand in recent days," said Eoin O'Callaghan, economist at BNP Paribas.

"But we feel the market overreacted. Fundamentals look tight to us in the third and fourth quarter this year."

"U.S. demand has been robust despite the rise in retail prices.. and we have the hurricane season on the horizon."

The Organization of the Petroleum Exporting Countries on Wednesday trimmed its forecast for global oil demand growth in 2006 by 60,000 barrels per day.

But OPEC still forecast strong annual demand growth of 1.4 million bpd, fueled by China.

OPEC expects U.S. demand to pick up later in the year.

Last week, U.S. inventory data showed gasoline demand up 0.3 percent on the year so far in 2006.

Traders were looking to the next set of data due out later on Wednesday for the latest snapshot of demand in the world's largest consumer.

A Reuters poll of analysts showed a consensus of expectations that gasoline stocks would rise 1.6 million barrels as refiners boost output ahead of the driving season.

Iran smolders

Iran's President Mahmoud Ahmadinejad rebuffed on Wednesday the latest attempt by the European Union to diffuse the international dispute over Tehran's nuclear ambitions.

"They say we want to give Iranians incentives but they think they are dealing with a four-year-old, telling him they will give him candies or walnuts and take gold from him in return," Ahmadinejad told a crowd in Iran."

Britain, France and Germany offered a package of incentives aimed at inducing Iran to freeze its nuclear enrichment program.

Concern over possible disruptions in oil exports from OPEC's second-largest producer Iran have helped drive prices to record highs this year.

"The market is still bullish in the medium and longer term," said Tony Nunan, assistant general manager of risk management at Mitsubishi Corp.

"We are not out of the woods yet as far as Iran's nuclear issue is concerned. And also the U.S. gasoline situation is still not clear."

Any disruptions in Iran's crude oil exports can be covered for more than four years by the 26 countries that belong to the International Energy Agency, a U.S. Energy Department official said on Tuesday.

But that would leave the world with no stocks to counter any other supply outages.