GLOBAL MARKETS-Record oil, credit worries dog global stocks

(Recasts with U.S. markets, adds byline; dateline previous LONDON)

By Herbert Lash

NEW YORK, May 9 (Reuters) - Oil's relentless surge to new highs on Friday and a record $7.8 billion loss at AIG, the world's largest insurer, rekindled concerns that the bite from a credit crunch is not over, dragging down stocks around the world.

A rise in oil to over $126 a barrel, the fifth straight session of record gains, fueled fears that the high prices will spread inflation throughout the economy.

Banking shares led stock markets lower in both the United States and Europe after U.S. insurer American International Group (AIG.N: Quote, Profile, Research) reported a record-breaking $7.8 billion quarterly loss late on Thursday as it wrote down assets linked to subprime mortgages. AIG also said it would raise $12.5 billion in new capital to strengthen its balance sheet.

News on Friday from Citigroup (C.N: Quote, Profile, Research), the top U.S. bank, that it plans to shed $400 billion in assets also pressured the financial sector.

"Over the past weeks, investors got the feeling that the credit crisis was easing, but a piece of news like that is sort of a wake-up call that reminds us that the storm is far from over," said Marie-Pierre Peillon, head of equity and credit research at Groupama Asset Management in Paris.

"This Citigroup move might just be the beginning."

Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois, voiced a similar sentiment: "Many more financial institutions will be needing to raise capital to shore up balance sheets."