Oil rose to another record as the dollar slid to a new low against the euro, after the US Federal Reserve announced an emergency cut to its discount rate over the weekend and amid fears more US banks could be vulnerable to the crisis that afflicted Bear Sterns.

Oil, which is priced in dollars, becomes cheaper for holders of other currencies as the greenback wilts, and in the current market also offers a hedge against falling asset values. Investors are increasingly pulling money out of volatile currencies and equities in favour of commodities.

With the dollar remaining the main driving force in the oil market, all eyes are now on the Fed, with the bank expected to cut its funds rate by up to 75 basis points tomorrow.

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'Commodities have risen on the back of a falling dollar,' said MF Global (NYSE:MF) analyst Ed Meir. 'Still a question mark for the markets is not only what will happen for the rest of the day on Monday, but what the Fed intends to do tomorrow on the rate front.'
'Whatever the ultimate size of the reduction, the dollar is bound to suffer and we could see another round of higher commodity prices.'
At 9.32 am, New York's WTI crude for April delivery was up 59 cents at 110.80 usd per barrel, having earlier hit a new record of 111.80 usd.

In London, Brent crude for May delivery was up 64 cents at 106.84 usd per barrel. Earlier it traded to 107.97 usd, close to the all-time high of 108.02 usd it reached on Friday.

The Fed said yesterday it is lowering its so-called discount rate -- the rate at which it lends to other banks -- by a quarter of a percentage point to 3.25 pct in a bid to boost liquidity in the financial markets.

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