Shares slide across the world as oil hits a record of $142 a barrel

Fears of a food price war together with concern over banks’ financial strength hit investors in early trading, but shares recovered towards lunchtime.

The FTSE 100 index of leading shares fell 34.4 points to 5,483.8. The latest surge in oil, which breached the $140 mark at $140.39 yesterday, will cause further panic in the US and Asia where stocks fell overnight and this morning.

Asian markets fell after the Dow Jones in New York hit a two-year low. However, in New York the benchmark Dow Jones index opened ahead, up 0.13 per cent at 11,468.15.

Bad news: Specialist Charles Janness watches his screens at his post on the New York Stock Exchange trading floor

China's benchmark Shanghai index dropped by 5.3 per cent, while India's Sensex index declined by 4.3 per cent.

Indexes in Japan, Taiwan and South Korea all shed more than 2 per cent.

In America yesterday, the Dow Jones fell more than 350 points to its lowest level in almost two years.

It is now on course for its worst June performance since the Great Depression of the early 1930s.

The febrile mood on trading floors came amid fears that soaring energy prices will push up inflation and erode consumer spending, dramatically reducing company profits.

At the same time, Wall Street analysts gave a grim assessment of the prospects of some of the U.S.'s most prominent companies.

General Motors – America's largest car maker – slumped to a 53-year low, and there were more concerns about the sub-prime exposure of Citigroup, the country's biggest bank.

Hi-tech firms Oracle, and BlackBerry maker Research in Motion also weighed in with bad news.

OPEC President Chakib Khelil yesterday warned prices could hit $170 before the end of the summer.

The news drove home to investors how much they stand to lose from the fallout of the prolonged housing slump, the credit crisis and the soaring price of oil.

The great fear on Wall Street is that consumers – worried about their dwindling finances – will further curb their spending, sending the economy into even deeper decline.

Plummeting: Passersby look at a stock price board outside a securities company in Tokyo. Japanese stocks dropped for a seventh day to a two-month low

Shares slums: A trader on the floor of the Philadelphia Stock Exchange shows his despair

The threat of recession and the dire outlook for the car market prompted investment bank Goldman Sachs to advise clients to sell shares in GM, one of the 30 stocks that comprise the Dow industrials. GM sank $1.38, or 11 per cent, to $11.43 (£5.75).

Meanwhile, Citigroup tumbled 6.3 per cent on more worries about its exposure to the credit squeeze, while RIM fell 13 per cent.

Falling shares on the Dow Jones outnumbered risers six-to-one.

The Russell 2000 index of smaller companies fell 17.88, or 2.5 per cent, to 698.42. In Britain, hawkish Bank of England testimony before MPs only deepened the sense of foreboding.

Markets director Paul Tucker, deputy governor Sir John Gieve, and external members Kate Barker and Tim Besley revealed they considered hiking rates this month amid mounting inflation worries.

All four Monetary Policy Committee members voted to peg rates at 5 per cent. Governor Mervyn King declared he is 'absolutely determined' to pull inflation back to the 2 per cent target.