New York ? Oil prices briefly spiked more than $25 a barrel Monday, shattering the record for the biggest one-day gain as unease about the government’s $700 billion bailout plan pummeled the dollar and spurred investors to buy safe-haven assets. An expiring crude contract added fuel to the frenzied rally.

Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, a common occurrence when a contract is about to go off the board.

Still, the rally, which shattered crude’s previous one-day price jump of $10.75, set June 6, showed the intensity of emotion in the market. The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.

The November crude contract, which became the front-month contract at the end of Monday’s session, settled at $109.37, up $6.62, still a very sharp gain.

The severity of the price move shocked veteran market participants and prompted the U.S. Commodity Futures Trading Commission to launch an investigation into whether illegal manipulation was to blame.

Acting CFTC Chairman Walter Lukken said the agency’s surveillance and enforcement staff was analyzing the price spike “to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain.”

Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.

“When people sense that someone is short, it’s like blood on the streets. It just accelerates the rally,” Flynn said.

In other trading, gold prices shot up more than $44.30 to settle at $909 an ounce, and other safe-haven commodities also rallied, underscoring investors’ uncertainly about the direction of the economy and their fear of more turmoil ahead.

“We’re off to the races again,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. “There’s a renewed scramble for commodities because of a general weakness in the dollar.”

Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil’s steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.

The rally came as energy traders grappled with the implications of the government’s proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks’ bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors’ nervousness.

Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.

“They’re going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer,” said Matt Zeman, head trader at LaSalle Futures in Chicago. “Right now it’s fear and anxiety driving people who want tangible assets.”

The 15-nation euro rose to $1.4796 in afternoon trading, up from the $1.4470 on Friday. A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector.

“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.

Crude’s resurgence could halt steadily sliding pump prices. A gallon a regular 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.

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.

Given the dire economic outlook, some analysts questioned whether oil prices would keep rising.

“We’ve already seen that the world can’t afford oil at these prices. If it keeps going up, demand will drop off again,” Flynn said.

However, he cautioned that oil’s future direction hinged on the outcome of the government bailout plan and its effect on the U.S. economy.

“If the dollar keeps getting whacked and everybody panics, then we are going up again,” he said.

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.

In other Nymex trading, heating oil futures rose 14.52 cents to settle at $3.043 a gallon, while gasoline futures rose 10.41 cents to settle at $2.7038 a gallon. Natural gas futures rose 9.5 cents to settle at $7.943 per 1,000 cubic feet.

In London, November Brent crude rose $6.43 to settle at $106.04 a barrel on the ICE Futures exchange.