Ignazio Visco at the OECD said: "The US political crisis could have a serious effect on world growth because stock markets could react."
Mr Visco said stock markets in US, Canada, Italy and Germany were all overvalued. He argued that a market fall of 20 per cent - which could be triggered by President Clinton's impeachment - would wipe 1 per cent from US growth.
Concern about President Clinton's political future weighed heavily on the dollar, which had fallen another 1.3 yen to 115.08 yen by lunchtime in New York, but later rebounded to post modest gains, closing at 116.10 yen.
The Clinton crisis also hit US government bonds, with the yield on 30- year Treasury bonds up 2 basis points at 5.03 per cent during afternoon Wall Street trade.
The renewed worries about the US presidency distracted attention from the crisis in the Gulf, and crude oil prices floundered as it became apparent the bombing raids had not halted the flow of Iraqi oil exports.
Oil prices slid by 11 per cent in New York late on Thursday night, while on London's International Petroleum Exchange, February Brent crude dipped back below $10 a barrel in afternoon trade.
Nick Stamenkovic, chief economist at Bank Austria Creditanstalt Futures, said: "With the supply overhang and the weak global economy, the outlook for the oil price continues to be poor."
Most major European bourses closed higher, spurred on by gains in Far Eastern markets overnight and a strong opening on Wall Street.
In London, the FTSE-100 index broke through the 5,700 barrier, closing up 1 per cent at 5,741.9, as fund managers embarked on a year-end buying spree.
One trader said: "It's quite common for fund managers to start buying heavily at this time of year to try and improve their showing by year- end".Reuse content