The bleak economic outlook in Britain sent the pound to a record low against the euro today, bringing parity a step closer.

The expectation that interest rates in the eurozone are likely to remain above those of Britain in the next few months pushed sterling to a record low of 97.6p against the euro.

The return of violence to the Middle East also sent oil and gold prices surging, and had a knock-on effect on natural resources stocks on European and Asian markets.

Oil prices rose as much as $2 to more than $41 a barrel in trading in Asia amid fears over the impact on supplies of crude oil. Brent crude later slipped back to be up $1.61 at $39.98.

The FTSE 100 index of leading shares rose 2.4 per cent, or 102.76 points, to 4,319.35, with Germany's Dax gaining 1.8 per cent to 4,704.86 and the CAC 40 in Paris rising fractionally to 3121.2.

The single currency rose steeply in early trading in London to its strongest level since the single European currency was introduced in 1999, edging closer to parity with the pound.

Meanwhile, the dollar fell against many currencies as dealers reflected concerns over the bombing of Hamas-controlled Gaza by Israeli warplanes and fears of a ground attack.

The oil price improvement comes after a year in which oil was subject to huge fluctuations, reaching almost $150 a barrel in July before crashing on fears of a global recession and a resultant tumbling of demand.

Gold prices continued last week's rally, rising more than 2 per cent to a high during the day of $889.55 an ounce, the highest level since the beginning of October, before easing to $880.7 at the end of the day.

A rally in resources stocks helped the MSCI index of Asia-Pacific stocks rise by 1.2 per cent, with the Nikkei in Tokyo closing up 0.1 per cent and the Australian and Singaporean stock markets both rising by more than 1 per cent.

The oil price increase also helped the FTSE 100 as BP added 24.5p to 520.50p, a rise of almost 5 per cent, and Shell was up 83p at £18, up 4.8 per cent.

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