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 Prices plunged on Monday over concerns as investors focused on the sale of Bear Stearns Cos. to JPMorgan Chase & Co. in a U.S. Federal Reserve-backed deal worth $236.2 million, or $2 a share
-- just a fraction of the investment bank's value last week.
The deal, while averting a bankruptcy filing for Bear Stearns, showed the severity of the fallout from the country's credit problems. Prices of oil and other commodities plunged as investors speculated over what financial woes may lie ahead.
"It was a broad based drop of commodities last night, and oil got caught up in that," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "It mainly reflected concerns about the U.S. economic outlook given the stresses in the U.S. financial system."
Light, sweet crude for April delivery on the New York Mercantile Exchange gained $1.57 to $107.25 a barrel in electronic trading by noon Tuesday in Europe.
On Monday, the contract dropped $4.53 to settle at $105.68 a barrel only hours after crude futures reached a new trading high of $111.80.
Traders were focusing on the Federal Reserve's meeting later Tuesday. The bank is expected to aggressively cut a key interest rate even lower as it races to contain spreading financial fires that threaten an economic meltdown.
"Traders are more or less catching their breath after last night," Moore said. "They're now waiting to see what action the Fed will take."
Many economists believe the Fed will deliver another three-quarter-point cut or perhaps even a full one-point reduction in the rate that banks charge each other for overnight loans
-- currently 3 percent -- at Tuesday's meeting.
In the past several months, Fed rate cuts have fed rallies in oil prices. Interest rate cuts, and even the prospect of future cuts, tend to weaken the dollar further, drawing fresh investing into oil futures.
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 "If recent history is a guide, a 100 basis point reduction by the Fed (Tuesday) could result in oil rising to the $114 to $116 range over the course of the next weeks," wrote Platts Chief Economist Larry G. Chorn in a research note.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is down.
But "just the opposite is also possible, if the market pays more attention to (an) economic slowdown," said Koichi Murakami, a broker at Daiichi Shohin. "It's hard to predict, as prices these days have moved totally unconnected with the crude's fundamentals."
Traders were also looking ahead to U.S. inventory data to be released Wednesday. Vienna's JBC Energy, in its daily news letter said crude stocks would likely build by about 2 million barrels over the previous week and gasoline stocks were expected to fall slightly but remain "over 20 million barrels above the five-year average."
Other energy futures also gained.
Heating oil rose by more than 3 cents to more than $3.10 a gallon while gasoline prices added more than 4 cents to $2.5482 a gallon. Natural gas futures jumped by 11.5 cents to sell at $9.215 per 1,000 cubic feet.
In London, Brent crude futures advanced $1.24, selling at $102.99 a barrel on the ICE Futures exchange.
[Associated Press; By GEORGE JAHN]
Associated Press writer Gillian Wong contributed to this report from Singapore.
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