Wall Street plunges towards worst month since the Great Depression of the early 1930s

Shares plunged on both sides of the Atlantic yesterday because of fears over oil, inflation and the global economy. In London the FTSE 100 slumped 2.6 per cent, or 147.9 points to 5518.2.

Meanwhile in America, the Dow Jones fell more than 350 points to its lowest level since October 1, 2006.

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.

At the same time, the price of oil surged to a record $140 a barrel after Libya signalled it may cut output, and OPEC President Chakib Khelil warned prices could hit $170.

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.

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.