Oil fell nearly $2 to stand near $87 a barrel yesterday as financial markets tumbled on growing concerns over the health of the US economy, triggering a correction from recent record highs.

At 1155 GMT US crude was down $1.73 at $86.84 a barrel, off lows of $86.54, retreating further from the $90.07 all-time high it hit on Friday. London Brent crude was $1.83 lower at $81.96.

The dollar bounced back from a record low against the euro, as European and Asian stocks fell sharply after a flurry of weak US corporate results sparked concerns the world?s top economy was heading for a recession.

US oil has rallied more than 10 percent since October 8, climbing towards the inflation-adjusted high of $101.70 hit in April 1980, a year after the Iranian revolution.

A weak dollar and surging energy costs have increased worries over the health of the US economy, already battered by the crisis in the subprime mortgage sector.

Despite oil?s slide since Friday?s all-time high, analysts said mounting tensions between Turkey and Kurdish rebels in northern Iraq would continue to offer underlying support and keep prices close to record territory.

?Despite oil?s slide since Friday?s all-time high, analysts said mounting tensions between Turkey and Kurdish rebels in Northern Iraq would continue to offer underlying support and keep prices close to record territory?

News Iran?s chief nuclear negotiator had resigned also raised concerns of more instability in the Middle East. Analysts say the man named to replace Ali Larijani could present the West with a harder line in a long-running dispute over Tehran?s atomic ambitions.

Kuwait?s acting oil minister said yesterday geopolitics and a lack of refining capacity was behind a surge in world oil prices and that a 500,000-barrels per day (bpd) output increase already agreed by OPEC would positively affect the market.

?We think that the production rise by 500,000 bpd will affect positively (the price),? Mohammad al-Olaim told reporters on the sidelines of an oil conference. ?It is in our interest that the price is appropriate for consumers and producers.?

However, others contend OPEC?s output increase from Nov. 1 is too little and too late.

?To bring the oil price down from its current level, OPEC?s members need to put more oil onto the market and allow commercial inventories to be replenished,? the London-based Centre for Global Energy Studies said in a report.

Meanwhile, speculators on the New York Mercantile Exchange crude oil market increased their net long positions in the week to October 16 as part of the rally that sent prices to a record $90 a barrel. Crude longs rose to 87,988, the highest level since mid-August, from 69,190.