LONDON, 5 August 2004 — World financial markets shuddered yesterday as oil prices soared to yet new record high levels, threatening to drive up global interest rates and put the brakes on a global economic recovery, analysts said.

Oil prices reached a new peak of $44.34 per barrel in New York and a record of $40.99 per barrel in London, before cooling slightly on news of an unexpected rise in US gasoline stocks.

Afterward, New York’s benchmark contract, light sweet crude for delivery in September plunged $1.32 to close at $42.83 a barrel. Brent North Sea crude for September delivery skidded 94 cents to $39.70.

Markets shivered after OPEC warned that it could not pump any faster to keep up with fast-growing demand, adding to market worries over terrorism and the risk of supply disruptions in Russia, Iraq and Venezuela.

“There is enough oil geographically at the moment, but the supply chain is tight and there is little room for disruption - hence the concerns over troubles at Russian oil company Yukos,” analysts at Standard Chartered said.

With the Bank of England and the European Central Bank preparing to announce interest rate decisions this week, investors were also growing increasingly concerned about the impact of rising energy costs on monetary policy.

German Finance Minister Hans Eichel said the current oil price was “a worry”.

“It could put the brakes on the global economy,” he added.

Oil prices were now “looking very dangerous” for global financial markets, warned Anais Faraj, global equity strategist at Nomura Securities.

“The key risk now is that central bankers feel obliged to carry on raising rates in the face of an oil shock.

“Indeed, the alternative - accommodating higher real oil prices - could easily replicate the inflation of the 1970s. Either way, bond and equity prices face significant policy risk,” he warned clients.

A quarter-point interest rate rise by the Bank of England to 4.75 percent today — the fifth since November — is seen by economists as a done deal.

But the European Central Bank, whose meeting today will be held by means of a teleconference without the usual press conference afterward, is not expected to move yet with the euro zone economies still sluggish.

On the world’s major stock markets, investors punished shares amid fears about the impact of rising energy costs and interest rates on corporate profits, though losses were offset somewhat by gains among oil stocks.

In New York the blue-chip Dow Jones Industrial Average of 30 top stocks fell 0.28 percent to 10,091.48 points in late morning deals.

European stock markets closed in negative territory. The London FTSE 100 index lost 0.49 percent to 4,408.1 points, the Frankfurt DAX 30 shed 1.38 percent to 3,823.74 and the Paris CAC 40 fell 1.18 percent to 3,607.58.

In Tokyo, the Nikkei-225 share index lost 1.17 percent to 11,010.02 points.

Hong Kong share prices closed down 0.62 percent yesterday. The key Hang Seng Index closed down 76.86 points at 12,280.26, off a low of 12,174.09.

Surging oil prices also impacted on the foreign exchange market, weighing in particular on the currencies of countries which rely heavily on oil imports, such as Japan.

“The yen has been undermined against the dollar by the further sharp increase in crude oil prices this week,” said Paul Chertkow, economist at the Bank of Tokyo-Mitsubishi.

“There is concern that the resultant higher energy costs will temper the strength of external demand and retard the recovery of domestic demand.”

The dollar rose to 111.26 yen in late London trading from 110.51 on Tuesday in New York.

The single European currency recovered losses to stand at 1.2058 dollars against 1.2055 late on Tuesday.