* Sees larger drop in 2016 non-OPEC supply of 700,000 bpd

* OPEC output rises in January, increasing supply glut

* Says low oil prices hurting world economy

(Adds details from report, quotes)

By Alex Lawler

LONDON, Feb 10 (Reuters) - OPEC pointed to a larger oil supply surplus on the world market this year than previously thought as Saudi Arabia and other members pump more oil, helping to make up for losses in non-member producers hurt by the collapse in prices.

The monthly report from the Organization of the Petroleum Exporting Countries indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report.

A persistent surplus could weigh on prices, which have collapsed to a 12-year low of $27.10 a barrel last month from over $100 in mid-2014. OPEC's 2014 strategy shift to defend market share and not prices helped deepen the decline.

OPEC also cut its forecast for world economic growth in 2016 to 3.2 percent from 3.4 percent and said low oil prices were hurting the economy, in contrast to previous price slides that were supportive of global growth.

"It seems that the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short-term," OPEC said. "There seems to be a 'contagious' effect taking place across many aspects of the global economy."

OPEC cited factors including the financial strain on producers dependent on oil income, the inability of central banks to lower interest rates and impacts on sectors from manufacturing to agriculture.

The report added to signs that the price drop is hitting relatively expensive non-OPEC supply. Companies have delayed or cancelled billions of dollars worth of projects, putting some future supply at risk.

OPEC now forecasts supply from non-member producers will decline by 700,000 bpd in 2016, led by the United States. Last month, OPEC predicted a drop of 660,000 bpd.

But OPEC produced 32.33 million bpd according to secondary sources, up 130,000 bpd from December, offsetting the forecast decline from outside the group.

Top OPEC exporter Saudi Arabia told OPEC it increased production to 10.23 million bpd from 10.14 million bpd in December. The secondary sources also reported higher output from major producers Iran and Iraq.

Supply from OPEC could rise further due to the lifting of sanctions on Iran. Tehran is aiming to increase output by 500,000 bpd, which would fill most of the hole left by non-OPEC members.

OPEC left its 2016 global oil demand growth forecast little changed, predicting demand would rise by 1.25 million bpd, marking a slowdown from 1.54 million bpd in 2015.

(Editing by Jason Neely) ((alex.lawler@thomsonreuters.com; +44 207 542 4087; Reuters Messaging: alex.lawler.reuters.com@reuters.net))