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NEW YORK (CNNMoney.com) -- Oil held its gains in volatile trading Tuesday, bouncing off an 8-month low on weakness in the dollar, but the advance was kept in check by falling stock prices.

Light, sweet crude settled up $2.25 to $90.06 a barrel on the New York Mercantile Exchange. It traded as high as $93.02 before retreating, having closed Monday at $87.81, its lowest level since February.

The oil market has been "watching the equity markets with a hawk eye," said Andrew Lebow, energy broker at MF Global in New York.

While oil prices showed some further strength earlier in the session, "the latest selloff in equity markets really casts a bearish pall over oil market," Lebow said.

Crude prices rose as much as $5 in early trading as the stock market responded positively to the Federal Reserve's plans to loosen credit to companies in an attempt to ease the current crisis.

But stocks turned solidly lower after Fed Chairman Ben Bernanke said the global financial crisis is likely to hinder the economy well into next year, and hinted that the Fed may cut interest rates soon.

"Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased," Bernanke said.

The Dow Jones industrial average tumbled about 250 points as investors reacted to Bernanke's remarks.

Dollar softens. Tuesday's rebound in the price of oil came as the U.S. dollar fell against its major trading partners.

The price of oil often climbs when the dollar weakens because many investors buy oil and other commodities as a hedge against inflation. And a less robust buck makes oil, which is priced in dollars, more of a bargain for overseas buyers.

The greenback had rallied against the euro and the pound recently amid a spate of near bank failures and government bailouts in Europe. But the dollar was pushed lower Tuesday as currency markets appeared to bet that the Federal Reserve will lower interest rates soon.

Many investors believe an emergency rate cut may be in store even before the central bank's regularly scheduled meeting on Oct. 29.

The Fed announced plans Tuesday to backstop the commercial paper market, a lending market that businesses use to get loans for everyday activities, by purchasing companies' short-term debt.

While lower interest rates can help boost economic activity by making it easier for business to borrow money, they can also fuel inflation and undermine a currency.

Demand concerns. The oil market continues to grapple with signs that the global economic slowdown will further undermine demand for oil and gas.

"If the global economy continues to weaken there could be more downside," in the price of oil, Lebow said.

On Monday, oil sank $6 as the crisis in Europe's banking system accelerated and investors discounted the U.S. government's massive $700 billion financial bailout.

The European economy has been strained recently by a spate of near bank failures and government bailouts as the credit crisis spreads across the Atlantic.

Meanwhile, the U.S. economy continues to struggle with frozen credit markets and a shaky financial system.

The historic intervention approved by Congress last week is aimed at reestablishing confidence in the financial markets with the goal of eventually stabilizing the broader economy. But the plan has met with some skepticism by market pros who say it will take time to implement and that it may not be enough.

Gasoline. Prices at the pump fell Tuesday and experts expect them to continue to come down.

The national average price for a gallon of regular, unleaded gasoline fell 2.4 cents to $3.480 from $3.504, according to a daily survey released Tuesday by the American Automobile Association. That's down 18% from an all-time high of $4.114 a gallon hit on July 17.

Analysts say the retreat in oil prices and a recovery in refining capacity in the Gulf Coast following recent storm damage could continue to push gas prices down to $3 a gallon in the next few weeks.