By Jeremy Gaunt, European Investment Correspondent
LONDON, May 9 (Reuters) - Oil prices bounded close to $125 a
barrel on Friday, hitting global stock markets as worries also
returned about the financial sector following losses at the
world's largest insurer, AIG.
European shares were down more than 1 percent and Japan
closed down more than 2 percent.
Weighing on many stocks was American International Group's
<AIG.N> posting of its largest ever quarterly loss on Thursday
after writing down assets linked to subprime mortgages. It said
it would raise $12.5 billion to strengthen its balance sheet.
Investors are generally persuaded that the worst of the
subprime woes and accompanying credit crisis is behind them, but
are still highly sensitive to bad news on the subject.
Japanese shares were also shaken by Toyota Motor Corp
<7203.T>, the world's biggest automaker, forecasting its first
annual net profit decline in seven years as it faces a triple
blow of a stronger yen, rising materials prices and a slowing
U.S. economy.
The Nikkei average <> closed down 2.1 percent or 287.92
points at 13,655.34. It has, however, gained nearly 20 percent
from a year-low hit on March 17.
Europe's FTSEurofirst 300 <> was down 1.3 percent.
Hanging over investors, meanwhile, were concerns about
record high oil prices, which could boost global inflation, slow
economic growth and cut into corporate profits.
Oil rose to a fresh record near $125 a barrel.
U.S. crude for June delivery <CLc1> rose as far as $124.70,
surpassing the previous record of $124.61 hit on Thursday.
Later, it was at $124.46.
"Funds are pouring into the crude market as prices have been
performing extremely well," said Tatsuo Kageyama, analyst at
Kanetsu Asset Management in Tokyo.
"Lingering geopolitical fears and high heating oil prices
are helping the market, but the speed of the rise is too fast."
DOLLAR FALLS
The dollar fell broadly while the low-yielding yen benefited
as high oil prices and falling stocks dented sentiment on the
U.S. economy.
The euro added to gains made the previous session after
European Central Bank President Jean-Claude Trichet said that
inflation remained his top concern, suggesting the bank won't
cut interest rates soon.
The euro had fallen to a two-month trough below $1.53 as some
investors expected Trichet, speaking after an ECB meeting at
which rates were kept unchanged, to temper his tough talk on
inflation and focus on signs of slowing euro zone growth.
Against a basket of major currencies, the dollar was down
0.5 percent <.DXY>.
The euro was up 0.3 percent at $1.5453 <EUR=>, nearly two
cents above a two-month low of $1.5284 set on Thursday before
Trichet's news conference.
The dollar was down 0.4 percent against the yen at 103.28
<JPY=>.
Euro zone government bonds were higher, boosted by falling
equity markets. The 10-year yield <EU10YT=RR> was down 4 basis
points at 4.032 percent while the two year was <EU2YT=RR> down 5
basis points at 3.669 percent.
(Editing by Gerrard Raven)
