* Oil rallies above $98 a barrel after slide
* Europe rescues more banks; US, European shares rise
* $700 billion bailout rejected, Bush urges Congress to act
(Updates prices)
By Alex Lawler and Jane Merriman
LONDON, Sept 30 (Reuters) - Oil was more than $2 firmer on
Tuesday, near $98 a barrel, after a fall of almost 10 percent in
the previous session, as fears of a major meltdown in financial
markets eased.
U.S. crude <CLc1> was up $2.10 at $98.47 a barrel by 1449
GMT, after losing $10.52 on Monday to $96.37 -- the second
biggest fall since April 23, 2003. London Brent crude <LCOc1>
rose $2.22 to $96.20.
U.S. shares <> rebounded after Wall Street's worst day
in 20 years, while European stocks <> set new highs for
the day.
The rebound suggested markets had fallen 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. "Congress must act."
More evidence of distress in the financial sector emerged,
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 Anthony Barker)
