* Oil rallies above $98 a barrel after slide
* Europe rescues more banks; US, European shares rise
* $700 billion bailout rejected, Bush speaks
(Adds Bush comments, updates prices)
By Alex Lawler
LONDON, Sept 30 (Reuters) - Oil was more than $2 firmer near
$98 a barrel on Tuesday, after a near 10 percent drop in the
previous session, as fears of a major meltdown in financial
markets eased.
U.S. crude <CLc1> was up $2.26 at $98.63 a barrel by 1342
GMT, after losing $10.52 on Monday to $96.37 -- the second
biggest fall since April 23, 2003. London Brent crude <LCOc1>
rose $2.77 to $96.75.
U.S. shares <> rebounded after the Dow Jones industrial
average posted its biggest daily point drop in history on
Monday.
European stocks <> firmed initially on Tuesday,
suggesting some belief that markets fell too far in Monday's
selloff after the U.S. Congress rejected a $700 billion
financial sector rescue plan.
"We've been moving in tandem with how the equity markets
have performed," said Rob Laughlin of MF Global. "In terms of
the rally today, I think things were overdone last night across
many markets, including energy."
"I'm not suggesting the panic is over but I am suggesting
the scare tactics in some quarters have proven to be rather
overdone."
CRITICAL MOMENT
On Monday, the U.S. House of Representatives voted 228 to
205 against a bailout plan that would have allowed the Treasury
to buy up toxic assets from banks. The shock rejection of the
plan sent stock markets sliding.
U.S. President George W. Bush said this was not the end of
the legislative process on the plan.
"We're at a critical moment for our economy and we need
legislation that addresses the troubled assets," he told
reporters at the White House.
Concern over the financial sector continued, with
Belgian-French financial services group Dexia <DEXI.BR> getting
a 6.4 billion euro ($9.18 billion) capital boost from public
shareholders.
Ireland offered to guarantee all bank deposits for two years
to improve banks' access to funds on international markets,
helping sentiment in the equity market.
Oil has fallen sharply from a record high of $147.27 reached
in July on signs that high energy prices and the financial
crisis have cut into crude demand in the United States and other
industrialised nations.
In addition, oil has also been dragged down as investors,
who had rushed into commodities earlier this year as a hedge
against inflation and the weak dollar, sold crude for safer
havens.
Analysts said the spread of credit problems to Europe was
also stoking fears that the financial turmoil, which started
with risky lending to the overheated U.S. property market, had
gone rapidly global.
"Slower international economic growth is bound to dent oil
demand," said David Moore, a commodities analyst at the
Commonwealth Bank of Australia.
(Additional reporting by Maryelle Demongeot in Singapore and
Fayen Wong in Perth; editing by James Jukwey)
