Wall Street was last night on the brink of a bear market after the Dow Jones industrial average slid sharply for the second day in succession, spooked by the rising price of oil.

The Dow Jones closed down 106.90 points last night, or nearly 1 per cent, to 11,346.50, just shy of a 20 per cent decrease from October’s stock market peak. Economists classify a bear market as one that has lost a fifth of its value from a bull market’s peak.

The slide – which has seen the New York index drop by almost 464 points in two days – has been triggered by the unrelenting increase in the price of oil and the threat of increased writedowns by Wall Street's investment banks.

The price of a barrel of light sweet crude oil yesterday jumped to $142.99, a new high. At the same time, Moody’s, the credit rating agency, warned Wall Street that it might cut its rating of Morgan Stanley, the investment bank.

The decline on Wall Street this month is on track to be the worst four-week period since September 2001, the month of the terrorist attacks in the US. There is just one trading session left this month.

Investors switched out of equities – because they fear that a US recession would see companies suffer a fall in profitability – and into gold, the euro, and the Swiss franc. Gold rose to a one-month high, up $16.20 to $931.30 an ounce, while the Swiss franc rose to a three-week peak against the dollar.

Edward Bretschger, director of equity sales and trading for Calyon Securities in New York, said: “Higher oil prices are continuing to be a drag on the market. The question is how much are they weighing on discretionary spending?”

The US economy, the world’s biggest, is already believed to be in recession, with the unemployment rate at about 5.4 per cent. About 380,000 Americans are losing their jobs each week. The surging oil price, the rising cost of food, deteriorating credit conditions and a housing slump are combining to put Americans under pressure.

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