Oil was steady above $42 a barrel on Thursday, after surging more than 6 percent overnight on U.S. government data that showed a larger-than-expected drop in gasoline stocks.

The market will eye U.S. January durable goods orders and weekly jobless claims -- due later on Thursday and likely to reflect slumping business investment and rising unemployment -- for further clues on the state of the world's largest economy and top oil consumer.

U.S. crude for April delivery was up 25 cents to $42.75 a barrel by 0220 GMT (9:20 p.m. EST Wednesday), after rising $2.54 on Wednesday. London Brent crude gained 26 cents to $44.55.

Oil's gains were spurred by U.S. Energy Information Administration data showing gasoline stocks fell 3.4 million barrels, against a forecast for just a 100,000-barrel draw.

Inventories in the U.S. have gone down for two weeks in a row -- it looks like the worst is probably over as far as the U.S. is concerned, but it's really the economy, the economy, the economy, said Anthony Nunan, risk management executive at Tokyo-based Mitsubishi Corp.

The data also showed a 1.7 percent rise in U.S. gasoline demand over the four weeks ending February 20, as low gasoline prices lured U.S. motorists back on the roads.

This helped oil shrug off a drop in equities markets, with European shares hitting a new six-year low.

U.S. stocks also fell after U.S. President Barack Obama's first address to Congress shed little new light on how he plans to stabilize the economy and shore up banks.

Data showing sales of previously owned U.S. homes plunged in January and prices hit a six-year low also weighed on shares.

Looking ahead, the U.S. Labor Department will release jobless claims for the week ended February 21, and the U.S. Commerce Department will also unveil January durable goods orders, both at 1330 GMT.

Oil has received support from reports earlier this week of high compliance by members of the Organization of the Petroleum Exporting Countries with deep production cuts agreed last year to stem the slide in oil.

Venezuelan Finance Minister Ali Rodriguez, a former president of OPEC, said the OPEC nation expected to propose new output cuts when the group next meets in March.

Global energy consumption has collapsed as the financial crisis has thrown most major economies into a recession, prompting oil prices to tumble nearly $110 since peaking in July.

Oil has bounced off the lows of $32-$33 a couple of times, and with talk of more OPEC cuts in March, we're probably pretty close to the bottom -- we should see the range of plus/minus $40 in the mid-term, Nunan added.

But the caveat is that it all depends on the economy -- whether Obama's package is able to put a floor to the slide in the broader economy.

(Editing by Michael Urquhart)