diff --git a/python/src/com/jetbrains/python/highlighting/PyRainbowVisitor.kt b/python/src/com/jetbrains/python/highlighting/PyRainbowVisitor.kt
index f466a7bb5ec5..a65651449e27 100644
--- a/python/src/com/jetbrains/python/highlighting/PyRainbowVisitor.kt
+++ b/python/src/com/jetbrains/python/highlighting/PyRainbowVisitor.kt
@@ -1,5 +1,5 @@
 /*
- * Copyright 2000-2016 JetBrains s.r.o.
+ * Copyright 2000-2017 JetBrains s.r.o.
  *
  * Licensed under the Apache License, Version 2.0 (the "License");
  * you may not use this file except in compliance with the License.
@@ -19,7 +19,9 @@ import com.intellij.codeInsight.daemon.RainbowVisitor
 import com.intellij.openapi.editor.colors.TextAttributesKey
 import com.intellij.psi.PsiElement
 import com.intellij.psi.PsiFile
+import com.intellij.psi.util.PsiTreeUtil
 import com.jetbrains.python.PyNames
+import com.jetbrains.python.codeInsight.controlflow.ScopeOwner
 import com.jetbrains.python.codeInsight.dataflow.scope.ScopeUtil
 import com.jetbrains.python.psi.*
 import com.jetbrains.python.psi.resolve.PyResolveContext
@@ -43,7 +45,7 @@ class PyRainbowVisitor : RainbowVisitor() {
   override fun clone() = PyRainbowVisitor()
 
   private fun processReference(referenceExpression: PyReferenceExpression) {
-    val context = getReferenceContext(referenceExpression) ?: return
+    val context = getReferenceContext(referenceExpression, mutableSetOf()) ?: return
     val name = updateNameIfGlobal(context, referenceExpression.name) ?: return
 
     addInfo(context, referenceExpression, name)
@@ -65,14 +67,18 @@ class PyRainbowVisitor : RainbowVisitor() {
     }
   }
 
-  private fun getReferenceContext(referenceExpression: PyReferenceExpression): PsiElement? {
+  private fun getReferenceContext(referenceExpression: PyReferenceExpression,
+                                  visitedReferenceExpressions: MutableSet<PyReferenceExpression>): PsiElement? {
     if (referenceExpression.isQualified || referenceExpression.name in IGNORED_NAMES) return null
 
     val resolved = referenceExpression.reference.resolve()
     return when (resolved) {
       is PyTargetExpression -> getTargetContext(resolved)
       is PyNamedParameter -> getNamedParameterContext(resolved)
-      is PyReferenceExpression -> if (resolved.parent is PyAugAssignmentStatement) getReferenceContext(resolved) else null
+      is PyReferenceExpression -> {
+        if (!visitedReferenceExpressions.add(resolved)) return getLeastCommonScope(visitedReferenceExpressions)
+        return if (resolved.parent is PyAugAssignmentStatement) getReferenceContext(resolved, visitedReferenceExpressions) else null
+      }
       else -> null
     }
   }
@@ -129,4 +135,20 @@ class PyRainbowVisitor : RainbowVisitor() {
   private fun addInfo(context: PsiElement, rainbowElement: PsiElement, name: String, colorKey: TextAttributesKey? = null) {
     addInfo(getInfo(context, rainbowElement, name, colorKey))
   }
+
+  private fun getLeastCommonScope(elements: Collection<PsiElement>): ScopeOwner? {
+    var result: ScopeOwner? = null
+
+    elements.forEach {
+      val currentScopeOwner = ScopeUtil.getScopeOwner(it)
+      if (result == null) {
+        result = currentScopeOwner
+      }
+      else if (result != currentScopeOwner && currentScopeOwner != null && PsiTreeUtil.isAncestor(result, currentScopeOwner, true)) {
+        result = currentScopeOwner
+      }
+    }
+
+    return result
+  }
 }
\ No newline at end of file
diff --git a/python/testSrc/com/jetbrains/python/PyRainbowHighlightingTest.java b/python/testSrc/com/jetbrains/python/PyRainbowHighlightingTest.java
index bd50a256fd40..e67e051a61a2 100644
--- a/python/testSrc/com/jetbrains/python/PyRainbowHighlightingTest.java
+++ b/python/testSrc/com/jetbrains/python/PyRainbowHighlightingTest.java
@@ -1,5 +1,5 @@
 /*
- * Copyright 2000-2016 JetBrains s.r.o.
+ * Copyright 2000-2017 JetBrains s.r.o.
  *
  * Licensed under the Apache License, Version 2.0 (the "License");
  * you may not use this file except in compliance with the License.
@@ -146,6 +146,15 @@ public class PyRainbowHighlightingTest extends PyTestCase {
     doTest("<rainbow color='ff000004'>l</rainbow> = lambda <rainbow color='ff000004'>x</rainbow>: sum(<rainbow color='ff000002'>y</rainbow> * <rainbow color='ff000002'>y</rainbow> for <rainbow color='ff000002'>y</rainbow> in <rainbow color='ff000004'>x</rainbow>)");
   }
 
+  // EA-96587
+  public void testEa96587() {
+    doTest("<rainbow color='ff000003'>a</rainbow> = 10\n" +
+           "<rainbow color='ff000003'>a</rainbow> += 10\n" +
+           "for <rainbow color='ff000004'>i</rainbow> in range(10):\n" +
+           "    <rainbow color='ff000003'>a</rainbow> += 10\n" +
+           "    <rainbow color='ff000003'>a</rainbow> += 10");
+  }
+
   // negative tests
 
   public void testSelfParameter() {