Crude prices rise to record levels after fresh terror threat

Oil prices hit a new record yesterday as investors rushed to move their money into safe havens following the warning by the US government of an imminent terrorist attack.

Gold and bond prices also rose after the US named five financial institutions, including the New York Stock Exchange, as prime targets for an al-Qa'ida attack. Shares were modestly lower and the dollar fell.

The price of light crude hit a peak at $43.92 a barrel, the highest since oil futures were launched on the New York Mercantile Exchange in 1983.

The unprecedented warning compounded speculative buying triggered by growing fears of attacks on oil supplies in the Middle East and turmoil the Russian oil major Yukos.

It coincides with a period of strong economic growth in the US, the world's largest oil consumer, while producers are pumping close to full capacity to meet demand. "The threat alert is bringing more confusion and uncertainty into the market," John Brady at ABN Amro in New York, said.

Prices eased after a Russian official said Yukos might get more than the two months allowed by law to pay a $3.4bn tax bill, reducing concern the state will strip out Yukos's largest unit. Shares in OAO Yukos Oil, Russia's largest oil exporter, jumped 12 per cent and crude prices in New York and London fell almost 1 per cent.

Police guarded key sites in New York, on alert for possible truck bombs, suicide bombers and chemical and biological attack. Politicians turned out for the start of trading at the NYSE, as a show of business as normal.

"This city is always going to be a target as it represents the basic freedoms of America, and the New York Stock Exchange to people around the world represents capitalism," Michael Bloomberg, New York's mayor, said after ringing the opening bell. The warning also named the World Bank and International Monetary Fund in Washington DC, Citigroup in New York and Prudential Financial in New Jersey as being at risk of attack.

On Wall Street, the Dow Jones stock index fell as much as 38 points in early trading while European shares closed lower. Bond prices rose as did gold - both safe haven assets.

Meanwhile American Airlines rescinded a $5, one-way hike in domestic fares to offset record high fuel prices, after other carriers did not follow suit. "We just couldn't be out of line with fares in the rest of the industry," a spokesman said.