Oil soars as stocks fall on economy fears

By Herbert Lash

NEW YORK (Reuters) - Oil shot to a record $139 a barrel on Friday, pushed higher by a falling dollar after a report of the sharpest one-month rise in the U.S. unemployment rate in 22 years sparked fears of 1970s-like stagflation and led to a rout in global equities.

Oil zoomed past a record high set in May, marking its biggest one-day gain in dollar terms ever, on dollar weakness and tensions in the Middle East.

U.S. crude's dramatic $11 jump fuelled concerns about inflation and a reduction of spending power of American consumers, whose layouts account for more than two-thirds of the U.S. economy.

The dollar dropped across the board and U.S. government debt rallied after data showed the unemployment rate shot up to 5.5 percent -- its highest in more than 3-1/2 years -- and the U.S. economy lost jobs for a fifth straight month.

The dollar fell against major currencies, with the U.S. Dollar Index .DXY down 0.93 percent at 72.362, and against the yen, the dollar fell 0.94 percent at 104.92.

The euro rose 1.17 percent at $1.5767.

The evidence of further labour weakness and an almost 9 percent spike in oil prices triggered the decline in the dollar the put in motion the oil rally, which rises when the U.S. currency declines, and pushed stocks into a rout.

The Dow Jones industrial average .DJI fell 394.64 points, or 3.13 percent, at 12,209.81. The Standard & Poor's 500 Index .SPX slipped 43.37 points, or 3.09 percent, at 1,360.68. The Nasdaq Composite Index .IXIC slid 75.38 points, or 2.96 percent, at 2,474.56.