GLOBAL MARKETS-Oil slumps on Goldman call, stocks steady before Fed meeting

* Fed rate decision next week hangs in the balance

* Goldman slashes oil forecasts, crude falls 3 pct

* Dollar drifts before possible U.S (Other OTC: UBGXF - news) . rate hike (Adds close of European bond, stock markets)

By Herbert Lash

NEW YORK, Sept 11 (Reuters) - Crude oil fell on Friday after Goldman Sachs (NYSE: GS-PB - news) slashed its price forecast through next year, while global equity markets slid on worries over the economic outlook and whether the Federal Reserve will raise interest rates next week.

A drop in U.S. consumer sentiment in September to its lowest in a year initially weighed on Wall Street, as the University of Michigan's preliminary reading for the month slid to 85.7, compared with the final reading of 91.9 in August.

It (Other OTC: ITGL - news) was also much lower than the median forecast of 91.2 of economists polled by Reuters.

"This is the first survey to reflect what people are feeling" about the economic slowdown in China and the U.S. stock market's recent selloff, said Phil Orlando, chief equity strategist at Federated Investors in New York. "At least in the near-term it's going to create some dislocation."

Stocks in Europe fell on the day but still recorded the biggest weekly rise since July. The pan-European FTSEurofirst 300 index closed down 1.0 percent at 1,401.07, and MSCI (NYSE: MSCI - news) 's all-country world stock index rebounded slightly, up 0.04 percent.

Wall Street also rebounded in thin trade ahead of the Fed's policy-setting meeting next week.

"The knee-jerk reaction on the Fed lift-off is negative," Orlando said. "We think the Fed lift-off is a positive for the economy and stocks, because it means the Fed is rubber-stamping the fact they truly believe the economy is strong enough."

The Dow Jones industrial average rose 68.58 points, or 0.42 percent, to 16,398.98. he S&P 500 added 3.15 points, or 0.16 percent, to 1,955.44 and the Nasdaq Composite gained 10.35 points, or 0.22 percent, to 4,806.60.

Goldman Sachs, Wall Street's most influential voice in oil trading, slashed its 2016 forecast for U.S. crude prices to $45 a barrel from $57 previously, and Brent to $49.50 down from $62, citing oversupply and concerns over China's economy.

Goldman also said while not its base case, crude could fall further to near $20 a barrel.

U.S. crude futures' front-month contract fell 86 cents at $45.06 a barrel. The front-month in Brent, the global benchmark for oil, slid 33 cents to $48.56.

U.S. Treasury prices gained as stocks fell and as investors focused on whether the Fed will raise rates for the first time in almost a decade when its policy-makers meet next week.

"It's all about whether the Fed indicates that they are going to do some kind of tightening," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New (KOSDAQ: 160550.KQ - news) York.

Benchmark 10-year notes were last up 7/32 in price to yield 2.1955 percent.

German 10-year yields, the euro zone benchmark, were down 4 basis points at 0.66 percent on growing doubts that the Fed would raise interest rates next week.

The dollar was little changed in thin, listless trading ahead of next week's Fed meeting.

The dollar index, a basket of currencies valued against the dollar, fell 0.31 percent to 95.164.

(Additional reporting by Jamie McGeever; Editing by Bernadette Baum and Nick Zieminski)