Oil prices reached yet more record highs on Friday, while concerns over slowing growth and a worsening of credit conditions drove investors to seek havens from risk this week.

Crude oil’s spike above $126 a barrel prompted heavy equity selling and left traders in the currency market scratching their heads.

Oil prices have, until the past few sessions, tended to move higher as the dollar weakened. But with the dollar broadly flat on the week this correlation has faded, leaving some currency market strategists questioning whether the link was ever particularly strong.

“Price movements have gone hand in glove for some time,” said Simon Derrick at Bank of New York Mellon.

“But the better leading indicator throughout this time has been with gold as concerns about lower US interest rates and slowing economy have driven investors to safe havens.”

Indeed, a flight to safety this week followed the announcement from the US Securities Exchange Commission on Wednesday that it was scrutinising investment banks and would urge more transparent disclosure from securities companies.

“While this will eventually result in more transparent and robust balance sheets, the current effect is likely to make matters worse before they get better,” said Charles Diebel, at Nomura.

Credit markets in Europe had their worst week in nearly six months because of concerns of a return to the tumultuous conditions last seen in the first quarter.

ING said data from a survey of Senior Loans Officers suggested second-round effects of the credit crunch would result in a sharp rise in corporate defaults.

“The prognosis for both the economy and markets is still looking negative,” said ING economist, Rob Carnell.

The cost of insuring European corporate bonds from default rose sharply over the week, having fallen to four-month lows last week. The iTraxx Europe index of investment grade debt, rose 13.75 basis points to 78.75. The iTraxx Crossover index of junk status bonds rose 45bp to 457. The CDX North America investment grade index rose by its biggest weekly amount in three months.

The heightened aversion to risk helped lift government bonds and drove yields lower.

The yield on the benchmark 10-year US Treasury note fell 8.4bp to 3.77 per cent, while the two-year note yield fell 2.3bp to 2.21 per cent.

The deepening economic gloom in the UK left the yield on the 10-year Gilt 15bp lower at 4.59 per cent, while the two-year yield fell 20.9bp to 4.29 per cent.

In the eurozone, the benchmark 10-year Bund yield fell 16bp to 4.58 per cent.

The dollar was a little weaker against the euro by the end of the week, but the US currency remained stronger against most other crosses. The biggest moves on currency markets this week were from the yen, as the Japanese currency was sought as a haven from volatility.

It rose 3.8 per cent against the high-yielding New Zealand dollar and climbed 3.3 per cent against sterling.

Sterling was undermined by expectations of a 25bp June interest rate cut to 4.75 per cent after the Bank of England held its fire at Thursday’s monetary policy meeting.

A more dovish tone from the European Central Bank put any lingering thoughts of possible rate increases in the eurozone firmly off the agenda.

It kept the main refinancing rate in the eurozone at 4 per cent, but acknowledged the risk of soft economic data in recent weeks.

The euro fell nearly 2 per cent against the yen, but climbed 1.4 per cent against the weak pound.

Equity markets were driven lower by heightened risk aversion and a flight from financial stocks after US insurer AIG revealed $15bn in credit-related writedowns and said it planned to raise $12.5bn to help fill the gap on its balance sheet.

Swiss bank UBS had another poor week as one of its top bankers was questioned by US tax officials. UBS fell 11.6 per cent over the week, leading a sell off in the European banking sector and leaving the FTSE Eurofirst 300 index 1.4 per cent lower on the week.

The SEC’s announcement on Wednesday fuelled a sell off on Wall Street. The S&P 500 was down 1.9 per cent over the week and the Dow Jones Industrial Average fell 2.3 per cent.

Asian markets also fell. The Nikkei 225 in Tokyo lost 1.4 per cent.

Oil was the main mover on commodity markets. Nymex West Texas Intermediate made a weekly gain of 8.5 per cent to a record $126.20 a barrel after Opec, the producer cartel, reiterated its belief that the global market was well supplied. The contract settled at $125.96.

Gold rose 2.5 per cent over the week to $877.10 a troy ounce.

Rising bulk commodity prices drove the price of shipping goods higher. The Baltic Dry index, a composite index of shipping prices, breached 10,000 points, rising 6.8 per cent over the week to 10,237. A year ago the index stood at 6,478.