Oil prices were steady to lower on Thursday as the prospect of a downgrade to Spain's  sovereign credit rating sparked euro-zone debt concerns,  outweighing positive US economic data.

US crude for January fell 7 cents to $87.71 a  barrel by 0316 GMT, adding to losses from the previous  session. ICE Brent dropped 46 cents to $90.75.

"Any positive data that comes out of the US is  sidetracked by negative data coming out of the Euro zone,"  David Taylor, an analyst at CMC Markets in Sydney.

Euro zone leaders start a two-day meeting in Brussels  expected to be closely watched by the markets on Thursday over  sovereign debt and other economic issues.
"The net position is pretty much neutral at the moment,  but it seems to be reasonably supported around the $88 per  barrel mark."

Rating agency Moody's warned on Wednesday that it might  downgrade Spain's debt rating due to its concerns about the  nation's mounting debt and 2011 funding needs.

The ratings agency said it did not expect Madrid to have to follow  Greece and Ireland into taking a European Union  bailout, but said that it could not rule out that  scenario.

The European debt worries sparked a rally in the dollar, putting pressure on oil prices. A stronger dollar can depress dollar-denominated oil  prices as it makes fuel more expensive to holders of other  currencies.

Strength in the greenback can also push investment into foreign exchange markets and out of from commodities.

Concerns over euro-zone debt overrode data showing strong industrial growth and low inflation in the world's number one oil consumer.

US industrial output rebounded in November to post its  biggest gain since July, another sign of a faster pace of  recovery in the fourth quarter, Federal Reserve data showed.

Government data also showed that inflation was low, with  consumer prices posting a mild gain.

US crude stocks fell 9.9 million barrels last week, the biggest weekly decline since September 2002, according to data from the US Energy Information Administration. – Reuters