Oil prices soared to new records today adding to inflation fears and worries over the world economy. The cost of a barrel of US light crude pushed past $86 in Asia to $86.64.

Japan's Finance Minister, Fukushiro Nukaga, told a press conference in Tokyo earlier today that leaders of the Group of Seven industrial nations, which begin a summit this week, would debate the crisis in US residential mortgages, which triggered a summer of turmoil across both bond and stock markets.

He said the G7 - the US, Japan, Germany, UK, France, Italy and Canada - would also look at credit ratings linked to mortgage securities. Rating agencies have come under fire for what critics see as a failure to spot the downturn in time.

Ahead of Friday's meeting in Washington, Mr Nukaga said he believed financial markets had begun to calm, although he stressed that policymakers needed to be on their toes.

His comments came after Nomura, Japan's largest bank said it was quitting the US residential mortgage market and axing 300 jobs. The bank is expecting to fall into a 40 billion yen (£170 million) to 60 billion yen loss for its second quarter, for the three months from July to September.

Three of the biggest banks on Wall Street unveiled plans yesterday to raise an $80 billion (£39 billion) bailout fund to buy distressed mortgage debt. Citigroup, Bank of America and JP Morgan Chase are behind the plan.

But that was not enough to calm markets. Overnight Wall Street lost more than 100 points,Tokyo shares closed 1.3 per cent lower earlier today - its lowest in seven sessions - and in London trading the FTSE was down 48 points at one stage after briefly touching new peaks yesterday.

The AA added that diesel was back at the record high seen last week - 99.76p per litre - while unleaded was a tenth of a penny higher at 97.68p per litre. Britain's motorists are spending £8 million more every day at the petrol pump than at the start of the year.

Ben Bernanke, chairman of the US Federal Reserve, said yesterday that the housing industry's contraction will be a "significant drag" on US growth into next year.

Mr Bernanke added that it was not yet clear whether the mortgage downturn was going to have a wider impact on spending.

"It remains too early to assess the extent to which household and business spending will be affected," he said in a speech to the Economic Club of New York.

It said the Fed "will continue to watch the situation closely and will act as needed to support efficient market functioning and to foster sustainable economic growth and price stability".

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