By Herbert Lash

NEW YORK (Reuters) - Oil prices surged to fresh record highs on Wednesday as a new spate of recession fears and a bleak corporate profit outlook pulled down stocks and boosted demand for less-risky investments like government bonds.

The International Monetary Fund also forecast the U.S. economy will tip into recession this year and said there is a 25 percent chance that world growth will slow to 3 percent or less.

A senior U.S. Treasury Department official said that forecasts of potential U.S. and worldwide recessions were unnecessarily bleak, but he conceded a housing downturn and market turmoil were weighing on global growth prospects.

U.S. equity indexes slipped about 1 percent and European shares almost as much as the sharp rise in oil prices dampened the outlook for corporate results and United Parcel Service Inc's (UPS.N: Quote, Profile, Research) warned late Tuesday of an earnings shortfall.

The dollar eased against a basket of currencies as traders snapped up the euro in anticipation of more tough inflation talk and signals from the European Central Bank that it was not ready to cut interest rates anytime soon.

Gold firmed, tracking oil's surge, but gains in U.S. Treasury debt prices were curbed by a report that the Federal Reserve is considering new measures to resolve the credit crunch should the steps taken so far fail to take hold.

The lowered profit forecast from UPS fuelled fears that fallout from the U.S. housing slump and credit crisis is spreading. General Electric Co (GE.N: Quote, Profile, Research), which reports results on Friday, was the heaviest drag on the benchmark S&P 500 Index, shedding 1.4 percent.

"All of these deep industrials are under pressure on the fear that this downturn we're in is going to broaden beyond housing," said Stanley Nabi, vice chairman at Silvercrest Asset Management Group in New York.