Oil prices fell nearly 3 percent to $68 a barrel on Tuesday as economic concerns sent investors into safer havens, outweighing positive U.S. manufacturing and home sales data.

U.S. crude for October delivery settled 2.73 percent lower at $68.05 a barrel, down $1.91. In London, Brent crude dropped $1.92 to settle at $67.73 a barrel.

The declines came after U.S. stocks dropped as renewed worries about the health of the U.S. financial sector shook investor confidence. <.N> The dollar rose as the slide in the U.S. stocks boosted the currency's safe-haven appeal.

The dollar is strengthening and equities are coming off hard, so (oil futures) did the same, said Tom Knight, a trader at Truman Arnold in Texarkana, Texas.

Oil futures had risen early in the day as the market focused on a report showing a jump in U.S. manufacturing and pending home sales.

It looks like the whole complex is failing to sustain the gains ... basically, the market's not done yet on the downside, said Tom Bentz, senior commodity analyst at BNP Paribas Commodity Futures in New York.

Oil prices have risen from a low of $32.40 in December, helped by economic recovery optimism that lifted global stocks <.MIWD00000PUS> to 10-month highs last month.


Oil traders will look for fresh direction from weekly U.S. crude stockpiles data.

Analysts expected the data to show a 600,000-barrel fall in U.S. crude stocks following an increase in refinery utilization, a Reuters poll of analysts showed.

The American Petroleum Institute was to release its weekly inventory report at 4:30 p.m. EDT on Tuesday. The U.S. Energy Information Administration (EIA) will release its data on Wednesday at 10:30 a.m. EDT.

Adding to already high inventories, the Organization of the Petroleum Exporting Countries has reduced its compliance with agreed production curbs, a Reuters survey on Tuesday found.

OPEC supply in August rose for a fourth consecutive month as Saudi Arabia, Nigeria and Venezuela increased their production, taking overall output discipline to 68 percent of the target from a revised 70 percent in July.

OPEC meets on September 9 in Vienna to reconsider its output policy.

(Additional reporting by Christopher Johnson and Catherine Bosley in London, Jennifer Tan in Singapore; Editing by Walter Bagley)