Oil prices held firmly above $60 a barrel as speculators sought to test the resilience of strong US demand and as Iran?s presidential election sowed fresh geopolitical worries.

US crude futures traded down 19 cents to $ 60.35 a barrel after rising 70 cents on Monday to close above $ 60 for the first time since trading started in 1983.

London Brent crude slid 24 cents to $ 59.06 a barrel. Speculative buying has helped fuel a 29 percent gain in prices since May 20 amid growing fears of a global strain on production and refining capacity in the fourth quarter, when demand for heating oil peaks.

Oil demand in the United States and Asia has so far remained strong in the face of soaring fuel costs, encouraging traders to test the upper limits of what consumers will pay for.

?Speculators want to see actual proof that end-user demand has fallen due to high oil prices,? said Tony Nunan, manager at Mitsubishi Corp.?s international petroleum business in Tokyo.

Higher costs may be creating obstacles for economic growth in many import-dependent countries but they have yet to derail a global expansion, economic officials say.

South Korea?s central bank chief said that high energy costs could shave 0.7 percentage point from the country?s economic growth this year if a trend of rising oil prices is sustained.

US data will provide the next gauge of stocks and demand in the world?s biggest consumer. Analysts expect a fourth consecutive decline in crude inventories and a rise in distillates as refiners maximise operations.

Crude stocks likely fell by 1.5 million barrels last week, while distillates should post a seasonal rise of 1.6 million barrels, a preliminary survey found.

Demand for distillates, which include heating oil and diesel, typically peaks during the northern hemisphere winter. It has been running strong this year, limiting refiners? ability to lift stockpiles from below average levels.

?The US gasoline demand has been holding up very well and distillate demand growth is stronger in the face of high oil prices,? Nunan added.

<B>Iran worry, OPEC sidelined</B>

Victory in Iran?s presidential election for ultra-conservative Mahmoud Ahmadinejad also supported prices, as the hardliner said he would press ahead with its nuclear programme, which is opposed by the United States.

Heightened geopolitical worries weigh heavily on an oil market sensitive to any potential outages since spare production capacity is limited to small unused volumes in Saudi Arabia.

The Organization of the Petroleum Exporting Countries (OPEC) could decide this week on a 500 000 barrel per day output increase, cartel President Sheikh Kahmad al-Fahd al-Sabah said on Monday.

But members have already said they believe more crude may not help cool prices being driven higher by a shortage of refined products. US crude inventories are still near six-year highs reached earlier this summer.

<B>Felicia LOO</B>