A new surge in oil prices to record highs above $90 a barrel inflamed fears over inflation and the threat of US recession yesterday, sending shares tumbling on both sides of the Atlantic.

The latest oil price rise sparked demands from Western governments for action to tame the cost of crude. Alistair Darling, the Chancellor, led calls for the Opec oil cartel to boost production to help to rein in prices, as the latest increase added to anxieties over global prospects vexing finance ministers from the Group of Seven leading economies meeting in Washington yesterday.

As G7 members expressed heightened concern over oil prices breaking through the $90 level, Mr Darling said that Opec should recognise the impact on world economic outlook and act. “The causes of the high prices we face today are many. It is partly an issue of supply and while the [previous] Opec increase we have seen was welcome, it does not go far enough,” the Chancellor said before the G7 talks.

The latest rise in crude prices further unnerved investors fretting over the fallout from the global credit squeeze and sent shares into steep falls in New York and Europe. After crude prices breached $90 twice in overnight trading before falling back, worries over the impact combined with poor corporate results to deal a blow to leading US shares on Wall Street.

The Dow Jones industrial average finished the day down 367 points, or 2.6 per cent, at 13,522.00. The broader-based S&P 500 index fell 39.45, or 2.56 per cent, to 1,500.63, and the tech-laden Nasdaq droppped 74.15, or 2.65 per cent, to 2,725.16.

In London the FTSE marked the twentieth anniversary of Black Monday by closing down 81.5 points, or 1.2 per cent, at 6,527.9, with all sectors ending the session in the red.

US bond yields and the dollar were also shaken as the threat from record energy costs stoked worries that the American economy could slide into a severe downturn. The yield on benchmark ten-year US Treasury notes fell to 4.43 per cent, from 4.5 per cent late on Thursday.

A further sell-off of the dollar also propelled the euro to a record $1.4318 before yesterday’s G7 meeting, fuelling speculation that the currency could reach $1.45.

In the UK, where the the average price of diesel went above £1 a litre at the pumps for the first time and petrol averaged 97.2p a litre, the pound climbed above $2.05 for the first time since early August. The gain came as stronger than expected official figures for Britain’s growth in the third quarter made a November cut in interest rates look unlikely.

The economy grew by 3.3 per cent in the year to the third quarter, the strongest pace for more than three years. According to the Office for National Statistics’ first estimate, GDP expanded by 0.8 per cent during the third quarter, marking the seventh successive quarter in which growth has been above the economy’s trend rate, or long-run average.

Mr Darling insisted that he would not back down over his decision this month to scrap taper relief on capital gains tax despite a mounting business backlash and warnings that the move will damage enterprise in Britain.

The Chancellor, speaking in Washington, said he would not capitulate to pressure from business groups over what he called the “simplyfing measure” of scrapping the complex reliefs in favour of a flat 18 per cent rate of CGT.

“What I want to do is to simplify the tax system and I think the proposals I've made, and the rate, which is very internationally competitive, is the right thing to do."

Sovereign fund fears

Western governments have begun a drive to exert greater influence over the burgeoning activities of the multibillion-dollar investment funds set up and controlled by key Asian and Middle Eastern states. Amid mounting anxieties over the often-secretive funds’ acquisitions in strategic sectors, an initiative aimed at encouraging them to be more open over their activities was launched by theG7 finance ministers in Washington yesterday. The ministers asked the International Monetary Fund to work with the Organisation for Economic Cooperation and Development to develop guidelines and voluntary ground rules that the so-called “sovereign wealth funds” could adopt.

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