Oil prices spiked more than $7 a barrel Monday, soaring above $111 as the government's proposed bailout plan weighed on the dollar and touched off frenzied buying of safe-haven investments.

Light, sweet crude for October delivery jumped $7.11 to $111.66 in early afternoon trading on the New York Mercantile Exchange. Crude has gained about $20 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100.

At the pump, retail gas prices fell as more Gulf Coast refineries ramped up operations following shutdowns forced by Hurricane Ike. A gallon of regular gas shed 1.8 cents overnight to a new national average of $3.739, according to auto club AAA, the Oil Price Information Service and Wright Express.

Oil's sharp gains came as energy traders grappled with the implications of the government's proposed $700 billion initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities.

Some traders are buying oil in the belief that the plan will boost the economy and lead to a resurgence in U.S. energy demand. But others say the massive outlay of taxpayer money will further devalue the dollar and touch off another commodities bull-run as investors race to buy hard assets an inflation hedge. The 15-nation euro rose to $1.4686 in morning trading, up from the $1.4470 on Friday. A weak greenback was a catalyst for the commodities boom of the past year.

"That trade was very successful in past so if the dollar keeps weakening, a lot people are going to want to own hard assets like crude," said Andrew Lebow, senior vice president and broker at MF Global in New York.

But there is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations. Though pump prices have eased from record levels above $4 a gallon, they remain expensive, and more softening in the economy would likely further curtail energy use in the world's thirstiest consumer.

"There are a lot of issues to be filled in. It's an extraordinarily complex situation," said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. "The market is digesting how the (rescue) package will work and the implications for the U.S. economy."

U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation, House Speaker Nancy Pelosi said Sunday.

Treasury Secretary Henry Paulson pushed lawmakers, who received the package on Saturday, to approve the proposal as soon as possible.

The Federal Reserve also announced late Sunday it granted a request by investment banks Goldman Sachs and Morgan Stanley to change their status to bank holding companies, a move that will allow the two institutions to open commercial banking subsidiaries, greatly bolstering their resources.

Traders were also watching news from Nigeria, where the country's main militant group in the southern oil region Sunday declared a unilateral cease-fire, ending the worst spate of militant attacks in years.

The Movement for the Emancipation of the Niger Delta said it was ceasing hostilities immediately after appeals from elders and politicians in the region. Three years of attacks have cut Nigeria's oil production from 2.5 million barrels per day to around 1.5 million barrels.

The group warned it would launch another spate of attacks if the military raided one of the group's base camps.

In other Nymex trading, heating oil futures rose 10.62 cents to $3.004 a gallon, while gasoline prices gained 4.61 cents to $2.6458 a gallon. Natural gas for October delivery fell half a penny to $7.845 per 1,000 cubic feet.

In London, November Brent crude rose $3.59 to $103.20 a barrel on the ICE Futures exchange.