America officially entered a bear market last night, for the first time in six years, as the oil price hit a new record high.

The Dow Jones lost 166.75 points, or 1.5 per cent, to close at 11,215.51, bringing its decline since its peak last October to 20.8 per cent. A market is said to have entered bear territory when it has fallen by a fifth from its previous high.

The Nasdaq declined by 53.51, or 2.3 per cent, to end the day at 2,251.46, also taking it into bear terrain by bringing its drop since October to 21.3 per cent. The Standard & Poor’s fell by 23.38 points, or 1.8 per cent, to 1,261.53. Although the S&P did not enter a bear market, yesterday’s close brought it within a whisker of it by bringing the decline since its October peak to 19.4 per cent.

America’s key stock indexes were dragged down on concerns about crude oil, which exceeded $144 a barrel in late New York trading before settling at a new record close of $143.57, representing a 1.8 per cent rise on the day.

Investors were spooked further after Merrill Lynch gave warning that, for General Motors, “bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised,”. The warning sent shares in the once mighty American industrial company to a 54 year low.

The Dow also suffered as shares in Alcoa, the aluminium group, fell by 6.8 per cent, in part on fears that a sustained rise in the price of oil would lead to a decrease in demand for metal to make cars. More generally, shares were dragged down across the board as investors feared that rising energy prices would hit corporate profits in two ways: increasing a company’s costs and reducing the amount that consumers have to spend on its products.

Separately, it emerged last night that Lehman Brothers would increase the proportion of its total employee pay that is funded by stock from 50 per cent in 2007 to about 65 per cent this year, prompting speculation that the group needed extra cash to stem future losses on its portfolio of mortgage-related investments.

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