NEW YORK (Reuters) - Oil prices dropped nearly 10 percent on Monday after the House of Representatives rejected the $700 billion rescue package for the financial sector.

The Mstrd oil refinery in Cairo, is seen in this file photo from May 6, 2008. REUTERS/Nasser Nuri

Stocks plunged after lawmakers voted against the bailout and major U.S. and European banks needed emergency deals to stave off collapse, sending investors fleeing to the safety of gold and debt.

U.S. November crude settled down $10.52 to $96.37 a barrel, after touching a session low of $95.04, in the second biggest drop since April 23, 2003. November crude dropped 11.8 percent last Tuesday following a spike in the expiring October crude contract in the previous session.

London Brent crude traded down $9.56 to settle at $93.98 a barrel.

The House voted 228-205 to reject the bailout bill, which would have authorized the Treasury Department to purchase broken mortgage-backed bonds from banks with the goal of jump-starting stalled capital markets.

“The bailout package being defeated sent stock markets tumbling, weighing on petroleum as well,” said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.

The mounting economic crisis has stirred concerns about oil demand, helping drag prices from a record high above $147 a barrel in July.

In addition, investors who had rushed into commodities earlier this year as a hedge against inflation and the weak dollar have sold crude for safer havens.

“This decision is a shock to the system,” said Sarah Emerson, director of Energy Security Analysis Inc. “The oil market is reacting strongly in part because of the implications of a weak economy on demand.”

Traders also were watching the slow recovery of U.S. oil infrastructure following after Hurricane Ike hit the U.S. Gulf of Mexico.

The U.N. Security Council unanimously passed a resolution on Saturday that again ordered OPEC nation Iran to halt its nuclear enrichment work, but it imposed none of the new sanctions Washington and its allies wanted.