By: THE CANADIAN PRESS

TORONTO - Oil barrelling toward the American driving season at a new record high oppressed Wall Street sentiment Friday morning.

Crude oil was at US$125.48 per barrel on the New York Mercantile Exchange after going as high as $125.98 overnight.

Also weighing on U.S. investor morale was word that American International Group Inc., the world's largest insurer, lost $7.8 billion in the first quarter and plans to raise $12.5 billion in new capital. That renewed anxiety, which had been abating, over strains in the global financial system.

New York stock index futures pointed to sharp losses and equity markets were down in Europe and Asia as the ongoing streak of record oil prices stoked inflation worries. China reported its producer prices were up 8.1 per cent in April over a year earlier.

Gold was up $5.70 to US$887.80 an ounce.

In contrast to the U.S. stock market outlook, the commodity-price rises and solid employment news could nudge Toronto's S&P/TSX composite index to a new record level, and boosted the Canadian dollar 0.98 cent to 99.30 cents US at the open.

Statistics Canada reported Friday morning that the national jobless rate edged up 0.1 percentage point in April to 6.1 per cent, but this was because more people entered the labour force, while the economy created more than 19,000 jobs.

In political business news, the federal government has confirmed its decision to block a controversial American takeover of part of Canada's premier space technology firm. Industry Minister Jim Prentice said he remains unconvinced that the proposed $1.3-billion acquisition by Alliant Techsystems Inc. of the satellite systems business of MDA would benefit Canada.

Elsewhere in corporate Canada, Fording Canadian Coal Trust (TSX:FDG.UN, TSX:TCK.B) said its average price for the 2008 coal year is expected to nearly triple.

And the Aeroplan Income Fund (TSX:AER) plans to reorganize from an income trust into a "growth-oriented, dividend-paying global loyalty management public corporation."

Chinese stocks fell Friday as inflation data revived worries of further credit tightening. The Shanghai Composite Index fell 1.2 per cent, or 43.35 points, to 3,613.49.

Hong Kong's key stock index dropped for a third straight session, with the Hang Seng dropping 386.62 points, or 1.5 per cent, to 25,063.17.

Japan's Nikkei 225 index sank 287.92 points, or 2.1 per cent, to 13,655.34.

The FTSE 100 index was down 1.25 per cent near midday in London, while the German DAX faded 1.3 per cent and the Paris CAC-40 dropped 2.4 per cent.