Oil falls $2 after surge, bailout worries weigh

By Alex Lawler

LONDON (Reuters) - Oil fell more than $2 a barrel on Tuesday, after a record one-day rise in the previous session, depressed by doubts over a U.S. plan to rescue the financial sector.

U.S. crude for November was $2.17 down at $107.20 a barrel by 1241 GMT, after rising nearly $7 on Monday. November Brent crude traded down $2.63 to $103.41.

The October U.S. crude contract on Monday settled 15.7 percent higher at $120.92 before its expiry -- the biggest one-day gain on record.

The U.S. regulator of futures markets, the Commodity Futures Trading Commission, said on Monday it was reviewing the price jump to ensure that the trading was valid.

Monday's price surge was supported by a weak U.S. dollar plus hopes the $700 billion U.S. bailout plan would ease the U.S. financial crisis and support demand in the world's top energy consumer.

But concerns that political resistance to the rescue package could delay its implementation weighed on global markets.

"It started off with a wave of optimism and now perhaps a bit of realism has kicked in," said Christopher Bellew, a broker at Bache Commodities.

"The dollar's weak, but the stock market is weak as well. The implications of that for demand are probably why we're coming back down again."

The weak dollar can boost the appeal of commodities to investors seeking to hedge against inflation. The dollar steadied on Tuesday against a basket of other major currencies.

U.S. Treasury Secretary Henry Paulson urged Congress not to weigh down the proposed financial system bailout with unrelated provisions that would delay its implementation.