UPDATE 10-Oil lower on doubts about US bailout plan

                                
 * Oil ends lower in volatile trade amid financial turmoil
                                
 * $700 billion bailout pact stalls in Congress
                                
 * Shell sees most U.S. Gulf output back in 2 weeks
                                
 (Updates with settlement prices)
                                
 By Rebekah Kebede
                                
 NEW YORK, Sept 26 (Reuters) - Oil settled more than $1 lower on Friday,
with trading volatile due to uncertainty about a bailout package for the U.S.
financial sector after talks between U.S. politicians stalled.
                                
 The $700 billion deal to rescue the faltering U.S.
financial system hit a wall on Thursday amid bickering between
Democrats and Republicans. [ID:nLQ501615]
                                
 U.S. crude <CLc1> settled at $106.89 a barrel, down $1.13, after trading
between $104.25 and $108.11.
                                
 London Brent crude <LCOc1>  settled at $103.54, down
$1.06.
                                
 "Coming off yesterday's strong finish, prices were knocked
lower when a tentative plan to bail out the nation's mortgage
crisis fell apart," said Mike Fitzpatrick, vice president at MF
Global in New York. "Additionally, Washington Mutual was seized
by federal regulators."
                                
 Uncertainty about details of the bailout package, and how
quickly it would relieve the distressed U.S. financial sector
led to some volatility, analysts said.
                                
 "A key focal point for a lot of traders is how are they
going to handle that toxic debt on the banks' balance sheets,"
said Rob Kurzatkowski, futures analyst with optionsXpress.
                                
 "There's been a lot of people speaking today, you've seen
politicians on the TV all day, but there really hasn't been
anything that traders can latch on to at this point."
                                
 Oil prices have dropped from record highs over $147 a
barrel struck in July as the economic crisis and high fuel
costs hurt demand in the United States and other developed
economies.
                                
 Further pressure has come as investors -- who flocked into
oil and other commodities earlier this year as a hedge against
inflation and the weak dollar -- shift into safer havens.
                                
 Oil has found some support from supply disruptions in the
U.S. Gulf of Mexico, home to a quarter of U.S. crude
production, caused by Hurricane Ike.
                                
 Recovery from those disruptions continues.
                                
 Shell Oil <RDSa.L>, the largest producer in the Gulf of Mexico, expects the
bulk of its offshore fields back on line within two weeks. [nN25525477]
                                
 The International Energy Agency said Thursday it did not
need to release emergency stocks to bolster supplies, even
though nearly 60 percent of the region's output remained shut.
[ID:nN25507217]
 (Additional reporting by Matthew Robinson and Jane Merriman in London, Fayen
Wong in Perth, editing by Anthony Barker; Editing by Gene Ramos)