Oil prices tumbled over 4 percent on Wednesday after an unexpected rise in gasoline stocks amid slowing demand sent prices into a tailspin, triggering a five-minute halt in trade and fueling the second big commodities sell-off in a week.

The momentum of gasoline's biggest fall in over two years washed across the oil complex and hit everything from silver to copper to the euro. Early losses stemming from weak Chinese industrial output data and gains in the dollar tied to Greek debt woes spiraled through the day, setting off sell-stops.

The abrupt tumble drove oil volatility to its highest close since mid-March as traders struggled to figure out where markets might find equilibrium after diving more than $13 a barrel from their peak just last week.

The gasoline market continues to run crazy. Last week's steep slide has increased volatility in the market, and we are still responding skittishly to that, said Gene McGillian, analyst for Tradition Energy in Stamford, Connecticut.

The underlying fundamentals haven't changed enough to see this kind of price change. The market is nervous.

Unlike last Thursday's precipitous fall concentrated in the crude oil market, activity focused on gasoline, which fell after the first rise in stocks in 12 weeks and as traders reckoned it less likely that flooding would affect refineries bordering the Mississippi River.

Trading of crude and refined products halted after gasoline futures dropped 25 cents, the limit down, tripping a five-minute circuit breaker aimed to calm feverish markets. It was the first time the breakers had been hit since the financial crisis in September 2008.

Gasoline fell further after trade resumed, breaking technical levels. Total volume reached a record 240,000 lots.

Brent crude settled down $5.06 to $112.57 a barrel. U.S. crude fell $5.67 to $98.21 a barrel, after touching as low as $97.50 a barrel.

U.S. gasoline futures suffered the biggest daily drop since September 2008, with the June contract settling at $3.1228 a gallon, losing 25.69 cents, or 7.6 percent. It was the biggest loss in dollar terms since September 2008.

Rising fuel costs this year have fueled calls by U.S. lawmakers to cut down on speculation in oil markets.

Those calls grew louder on Wednesday, even as prices fell, with a group of 17 U.S. senators calling on regulators to immediately crack down on rampant oil speculation by hastening planned rules to limit concentration.

STRONG VOLUME, HIGH VOLATILITY

Trading volumes, which have spiked amid the frenzied trade seen over the past week, surged again. Brent trading exceeded 770,000 lots in late U.S. activity, about 72 percent over the 30-day moving average, while trading on U.S. crude futures was about 40 percent over that average.

Oil market volatility rose sharply after the release of inventory data from the U.S. Energy Information Administration, sending the CBOE's oil volatility index out of a narrow trading range to hit a high of 43.8 percent.

In addition to the surprise build in gasoline inventories, the first rise in stocks after 11 consecutive declines, the EIA report showed a large rise in crude oil stockpiles as gasoline demand continued to trail year-ago levels.

The biggest increase came in the U.S. Northeast, including the New York harbor delivery point for the NYMEX gasoline contract.

CHINA, MARGINS

Early pressure on prices came after data showed China's industrial output growth eased much more than expected in April, suggesting the world's second-biggest economy is cooling. Consumer inflation eased modestly to 5.3 percent in April from a 32-month high in March of 5.4 percent.

Wednesday's fall in oil prices could prove another blow to commodity hedge funds, after last week's oil drop spurred double digit losses to big name funds such as Astenbeck and BlueGold.

Crude plunged more than $16 a barrel last week -- down 10 percent on Thursday alone -- with investors weighing factors from the death of Osama bin Laden to the impact of higher fuel and commodity costs on the economies of consumer nations to monetary policy in major economies.

CME Group Inc, which owns the NYMEX, increased margin requirements on gasoline futures on Wednesday, following a similar move for crude futures on Monday amid soaring volatility. ICE Clear Europe also raised margins for Brent crude on Wednesday, creating more downward pressure on prices.

(Reporting by Gene Ramos, Robert Gibbons, Janet McGurty, Emma Farge, Selam Gebrekidan, Eilen Moustakis and Joshua Schneyer; Writing by Matthew Robinson; editing by Sofina Mirza-Reid and David Gregorio)