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LONDON - Oil fell more than $1 on Tuesday, retreating further from record highs set last week in response to concerns about the health of the U.S. economy and further indications OPEC has already substantially raised oil output.

U.S. crude was 86 cents lower at $85.16 a barrel by 11:30 a.m. London Brent fell 62 cents to $82.85.

Oil has fallen more than $5 from a record high of $90.07 set on Friday, pressured partly by falls in gold and other commodities as the dollar rallied from a record low against the euro. But the dollar gave up some of these gains on Tuesday.

Oil's advance was also interrupted by concerns that a housing slump in the United States, the world's largest oil consumer, could act as a drag on the economy and limit future oil demand.

There are worries that record oil prices could add to pressures on the fragile U.S. economy. But economists say the overall impact will still be marginal compared with the upheaval caused by oil price shocks in the 1970s.

"All the players have learned a lot since then," Jan Amrit Poser, chief economist at Swiss private bank Sarasin, wrote in a research note.

"The energy efficiency of the global economy has improved by a factor of three in the meantime. Although total oil consumption has risen, the energy costs per dollar earned have fallen to a third of what they were in the seventies."

Oil has risen about 40 percent from the start of the year, propelled by worries about a tighter supply/demand balance ahead of the Northern Hemisphere's winter, plus political tensions in the Middle East.

DIPLOMATIC CHANNELS

Fears that Turkey might push into northern Iraq helped drive prices to new peaks last week. But Turkey said late on Monday it would exhaust diplomatic channels before any strike into northern Iraq against Kurdish rebels, who killed at least a dozen Turkish soldiers in fighting over the weekend.