* Oil rallies above $98 a barrel after slide
* Bank rescues spread in Europe; European shares rise
* $700 billion bailout rejected, Bush to speak
(Adds details, updates prices)
By Alex Lawler
LONDON, Sept 30 (Reuters) - Oil rose more than $2 a barrel
towards $98 on Tuesday, rebounding after a near 10 percent drop
in the previous session, as fears of a major meltdown in
financial markets eased.
European stocks <> firmed on Tuesday, suggesting some
belief that markets fell too far in Monday's selloff in response
to the rejection by U.S. lawmakers of 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."
U.S. crude <CLc1> was up $2.31 at $98.68 a barrel by 1210
GMT, after losing $10.52 on Monday to $96.37 -- the second
biggest fall since April 23, 2003. London Brent crude <LCOc1>
rose $2.60 to $96.58.
Concern over the financial sector continued, nonetheless,
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.
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 will make a statement on
Tuesday at 1245 GMT about efforts for an economic rescue
package.
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.
(Reporting by Maryelle Demongeot in Singapore, Fayen Wong in
Perth and Alex Lawler in London; editing by Anthony Barker)
