Oil extended losses below $96 a barrel on Tuesday, after slumping almost 10 percent in the previous session, as fear gripped financial markets.

US light crude for November delivery fell 82 cents to $95.55 a barrel by 0341 GMT, up from a low of $95.50 touched earlier, and after losing $10.52 on Monday to $96.37 -- the second biggest fall since April 23, 2003.

London Brent crude was down 64 cents at $93.34 after having fallen earlier by $1.00 to $92.98. 'It was a surprise that Congress rejected the bailout and it's just reinforcing the belief that the US economy is really heading towards a downward spiral. That means the demand side of the equation for oil will deteriorate rapidly,' said Toby Hassall, chief analyst at Commodity Warrants Australia in Sydney.

'It's just getting worse and worse and no one knows when this is going to end.'    

Oil has fallen about 35 percent since its $147 peak in mid-July, amid signs that high energy prices and the US 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. - Reuters