A C162 pilot experienced an NMAC inbound to PAO when he mis-identified ATC issued traffic.

Narrative

Flying southeast bound at 2;500 FT on a flight to PAO; [I was] given; 'Traffic; Citabria 5 miles 2 o'clock eastbound.' I responded; 'Looking for traffic - negative contact.' [I was] given; 'Traffic two miles; three o'clock eastbound; restricted above you.' I saw a plane crossing right to left far enough away that I could not tell whether it was a Citabria or not. Still I called out 'in sight.' This was a mistake which I immediately wished I had not made. Very worried now because the Controller thinks I have the traffic in sight; but the spotted traffic was clearly further than two miles away. I said nothing (mistake #2). The plane shortly appeared at the top of the windshield about 200 FT above me crossing my path. I know that the clock system has to be adjusted for the difference between the track which the Controller sees and the heading. I did not expect the traffic to be so far off the call. Also; I was flying a high wing plane and could not have seen this aircraft which came from essentially my four o'clock to pass in front of me. I did not want to admit that I did not in fact have the traffic I had previously called; which gave rise to a very dangerous situation. In [the] future I will be conservative calling traffic in sight. Distance; altitude; track and type will have to match the reported traffic. I need to be more aware that upward visibility is very restricted in a high-wing airplane. But especially I will notify ATC if I no longer have traffic.