UPDATE 10-Oil posts biggest 3-day gain since 1998

                                
 * U.S. government crisis plans boosts markets
                                
 * Oil companies work to restore U.S. production after Ike
                                
 * Nigerian rebels attack pipeline
                                
 (Adds Brent settlement)
                                
 By Richard Valdmanis and Matthew Robinson
                                
 NEW YORK/LONDON, Sept 19 (Reuters) - Oil rose more than
$6.50 on Friday to post its biggest three-day rally in a decade
on expectations a sweeping U.S. government bailout plan would
boost liquidity across the battered financial markets.
                                
 U.S. crude oil prices <CLc1> jumped $6.67 to settle at
$104.55 a barrel, bringing gains since Wednesday to 14.7
percent -- biggest three-day surge since December 2008 when the
United States ramped up tensions on Iraq to allow arms
inspections. London Brent rose $4.42 to $99.61.
                                
 "This is tracking the recovery we've seen in the capital
markets across the board on the government bailout plan. The
liquidity has come back in and it is pushing us higher," said
John Kilduff, senior vice president at MF Global.
                                
 The U.S. government launched several multibillion-dollar
programs to guarantee holdings in money-market mutual funds and
curb short-selling while developing a broader plan to mop up
toxic mortgage debt. [ID:nN19477884]
                                
 The moves came at the end of an agonizing week for Wall
Street, in which investment bank Lehman Brothers <LEH.N> filed
for bankruptcy, insurer AIG <AIG.N> was bailed out by the
government and Merrill Lynch <MER.N> was forced to sell itself
to Bank of America <BAC.N>.
                                
 Investors had worried the confluence of crises severely
threatened the stability of the U.S. economy -- a factor that
helped push oil to a seven month low of $90.51 a barrel earlier
in the week.
                                
 Oil prices remain sharply down from their peaks over $147 a
barrel hit in mid-July, pressured by mounting evidence that
high energy costs and economic troubles are undercutting global
fuel consumption.
                                
 Oil prices also got a boost Friday from weakness in the
U.S. dollar -- which strengthens overseas buying power in
commodities --  and supply disruptions from the hurricane-hit
United States and from OPEC-member Nigeria.
                                
 "Traders will continue to alternate focus between the
financial markets, which could result in further demand
destruction, dollar movements as well as production out of the
U.S. Gulf of Mexico," said Gerard Burg, a resource analyst at
the National Australian Bank in Melbourne.
                                
 Some 89.2 percent of oil production in the U.S. Gulf of
Mexico -- the source of one-quarter of the United States' crude
output -- remained idled on Thursday in the wake of Hurricane
Ike, along with about 14 percent of the country's refined fuel
capacity.
                                
 "The market had hoped we'd see a fairly quick rebound in
production from Ike, but that hasn't materialized," said
Killduff.
                                
 Meanwhile, militants in OPEC member Nigeria said they had
attacked another oil pipeline in the Niger Delta.
[ID:nLI166946]
                                
 The Movement for the Emancipation of the Niger Delta
(MEND), which has declared an "oil war" against the oil sector
and the military, said it used explosives to sabotage a Royal
Dutch Shell-operated pipeline at the Cawthorne Channel in
Rivers state.
 (Additional reporting by Fayen Wong in Perth; Editing by
Marguerita Choy)