Oil rebounds more than $2 ahead of Fed move

By Alex Lawler

LONDON (Reuters) - Oil rebounded on Tuesday, after a slide from record peaks a day ago, on expectations that a Federal Reserve interest rate cut will hit the U.S. dollar and spur investor demand for oil.

Other markets also rose ahead of the announcement expected from the Fed at around 1815 GMT. European and U.S. shares rallied and gold rose 1 percent.

"The Fed meeting will be the focus of participants in many asset classes today," said Mike Wittner, oil analyst at Societe Generale. "If the Fed move results in further dollar weakness, it should be very short-term bullish for oil."

U.S. crude rose $2.24 to $107.92 a barrel by 1715 GMT, after sliding more than 4 percent on Monday in the biggest one-day percentage drop in more than seven months. London Brent was $2.67 higher at $104.42.

World financial bourses had plunged on Monday after JPMorgan Chase & Co stepped in to rescue investment bank Bear Stearns for a bargain buy of $2 a share.

But on Tuesday, better-than-expected quarterly results from Wall Street firms Goldman Sachs Group Inc and Lehman Brothers Holdings Inc helped soothe investors' worries.

The Fed is also widely expected to cut short-term rates, which now stand at 3 percent, to shield the U.S. economy from further damage stemming from the crisis in financial markets.

Concern over a U.S. recession has hit the dollar, supporting oil and other dollar-denominated commodities despite the risk of a slowdown in underlying demand. U.S. crude hit a record high of $111.80 a barrel on Monday.