Its message coincided with a stark warning from HSBC, one of the world's largest investment banks, that it had put the US on alert for "recession risk".

The fund, which is holding its annual meetings this week, issued its warning in its closely watched, twice-yearly Global Financial Stability Report. It highlighted a sharp slowdown in the US economy, triggered by a slump in house prices, as the major risk. Other dangers included:

* A surge in inflation that would force central banks, particularly the US Fed, to impose sharp rate rises that would ripple through emerging markets

* A rebound in oil prices on the back of mounting speculation of geopolitical tensions - a reference to a showdown between Iran and the US over nuclear technology

* A sudden unravelling of the record imbalances between surpluses in Asia and deficits in the US

* A mutation in the avian flu virus that would lead to a "sharp decline in economic activity".

Jaime Caruana, director of the IMF's monetary and capital markets department, said: "Markets appear to price in little provision for these risks. So if one or some combination of these risks materialises, financial markets could experience greater turbulence that places stress on international markets, possibly with a wider impact on the global economy."

He said markets were now much more focused on a US-led global slowdown rather than the threat from global imbalances that has worried the IMF for the past six years.

However Hung Tran, Mr Caruana's deputy, said: "Comparable countries such as the UK and Australia experienced a strong upturn in prices and then a deceleration and the process has been seen as a soft landing so there is hope - which is our central case - that the US will experience something similar.

"However, it is clear that the risks are on the downside of a sharper than expected slowdown [in house prices] that would produce weaker-than-expected growth that would have implications for global growth and financial markets." This risk segues directly into fears of a slump in the dollar. HSBC issued a "recession-risk" alert for the US economy that would trigger a sharp fall in the dollar and pound.

David Bloom, a global economist, said the US would slow sharply next year, prompting investors to pull out of their massive gambles on US assets that so far had succeeded in offsetting record trade deficits. "Once these assets stop performing well and the dollar drifts lower, the dollar and asset cycle can turn more vicious. Once one does not want to buy an asset because of the fall in the dollar then the dollar starts to impact back on assets."

The IMF said its assumption was that any decline in the dollar would be "orderly", but there could be a more pronounced drop. It warned one reason the dollar could fall would be if investors believed it was clear the world's leading economies would fail to take action to resolve the imbalances between saving and demand across the world.

"A gradual and orderly adjustment would very likely depend on a credible policy framework for resolution of global imbalances over the medium term," the report said. "Accordingly, the risk of a disorderly dollar adjustment could arise without policies being put in place to foster the needed adjustments in savings and investment imbalances."

The IMF has done its bit, setting up a multilateral consultation between China and the US, as well as Saudi Arabia, to find a way to resolve the imbalances.

Its keynote world economic outlook published tomorrow will undoubtedly reiterate that the US must cut its deficits, China must liberalise its financial system and allow its currency to appreciate, the oil-rich countries should invest their windfall for growth while Europe should do more to boost its sluggish growth rates.

A fall in the dollar would also add to the inflation in the US as import costs rose. Inflationary pressures have been rising thanks to soaring energy costs.

The GFSR report showed that while long-run inflation expectations in the US have picked up, the inflation-related risk premium that investors are forced to pay has declined. "Should these gains erode and risk premiums for unexpected inflation increase, asset markets could come under pressure with potentially negative consequences for the real economy," it said.

Meanwhile, oil prices jumped more than a dollar a barrel yesterday, ending a run of recent declines. US oil prices broke back through $66 a barrel after a foiled attack on the US embassy in Damascus.

Unsurprisingly, the IMF did not give estimates for the financial implications of a dollar crash. But last month it published research by a leading economist that found, with a 10 per cent fall in the dollar, US stocks and bonds would wipe out $1.2 trillion of wealth held for foreigners.

The research found that UK investors held $471bn of US assets, the second largest in the world behind Japan. However, a national 10 per cent slump in asset prices would wipe out the equivalent of 5 per cent of GDP compared with almost 15 per cent in Italy.

The IMF did highlight consensus forecasts yesterday showing even an orderly decline in the dollar would not be shared equally across the world. The forecasts showed the fall would be absorbed entirely by a rise in the currencies of Japan, China, Korea, Taiwan, Singapore and Malaysia. On a general note, the IMF said the financial system had withstood a fall in prices and a rise in volatility in May after an unexpectedly large rise in inflation.

The IMF said corporate fundamentals were still solid, equity valuations were not stretched in most markets and major financial institutions were profitable and well capitalised.

However, it remarked: "In these circumstances it is reasonable to wonder whether financial markets might react to less favourable developments in a way that would amplify - rather than dampen - the emerging risks." The trigger for a shock to asset prices can come out of the blue, perhaps a natural disaster or a health epidemic such as bird flu.

The IMF reiterated its fears that an outbreak would reduce investors' appetite for risky investments, cut capital flows between companies and weaken financial systems as absenteeism rose.

David Nabarro, the senior UN System Co-ordinator for avian and human influenza, is in Singapore at the weekend to meet Jim Adams, head of the World Bank's avian flu taskforce.

But could political instability - such as that at the highest levels of the Labour Government this week that knocked the pound - trigger a crash? Mr Hung dodged the specific question, but said: "In the short term, this is very noisy and can distort uncertainty in exchange rates so we try to look over the medium term." Mr Caruana added: "There will always be surprises - but surprises are surprises."

"The downgrades on GE and Boeing started the market with a negative tone, and I guess the feeling is import prices were higher than expected and retail sales, ex auto, were a little less than expected," said Jim Awad, chairman of Awad Asset Management in New York.

The Dow Jones industrial average was down 35.70 points, or 0.31 percent, at 11,507.62. The Standard & Poor's 500 Index was down 2.94 points, or 0.22 percent, at 1,315.13. The Nasdaq Composite Index was down 6.71 points, or 0.30 percent, at 2,220.96.

UBS cut its rating on GE to "neutral" from "buy," citing concerns at its financial and other non-infrastructure business.

The bank also cut its rating on aerospace company Boeing, to "reduce" from "buy," citing worries about an economic slowdown which could hurt the company's orders.

Boeing shares slid 1. percent to $75.06, while GE shares lost 0.6 percent to $34.62.

Shares of Ford Motor Co. fell 4.1 percent to $8.81 after the Detroit News said the automaker could post a pretax loss of $8 billion to $9 billion this year, citing unnamed Ford sources.

Other government data showed U.S. jobless claims unexpectedly fell last week but the previous week's figure was revised upward.

Investors were waiting to hear from Federal Reserve Board Governor Susan Schmidt Bies, who is due to testify before a U.S. House subcommittee at 11 a.m.

Investors widely expect the U.S. central bank to hold interest rates steady at its September 20 policy meeting as it did in August when it left the federal funds rate at 5.25 percent.

Crude-oil prices have fallen about $14, or roughly 17 percent, from their July 14 peak of $78.40. After falling seven straight days, they rose slightly Wednesday in trading on the New York Mercantile Exchange, to $63.97, partly in reaction to a government report showing fuel inventories a bit lower than expected. But the overall price drop is expected to continue, and prices could fall much more in the weeks and months ahead.

Here's why:

For most of the past two years, oil prices have risen because the world's oil producers have struggled to keep pace with growing demand, particularly from China and India. Spare oil-production capacity grew so tight that market players feared that any disruption to oil production could create shortages.

Fear of disruption focused on fighting in Nigeria, escalating tensions over Iran's nuclear program, violence between Israel and Lebanon that might spread to oil-producing neighbors, and the prospect that hurricanes might topple oil facilities in the Gulf of Mexico.

Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Large pension and commodities funds are the big traders and they're seeking profits. They've sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise in the future bid up the price of oil.

That, in turn, led users of oil to create stockpiles as cushions against supply disruptions and even higher future prices. Now inventories of oil are approaching 1990 levels.

But many of the conditions that drove investors to bid up oil prices are ebbing. Tensions over Israel, Lebanon and Nigeria are easing. The hurricane season has presented no threat so far to the Gulf of Mexico. The U.S. peak summer driving season is over, so gasoline demand is falling.

With fear of supply disruptions ebbing, oil prices began sliding. With oil inventories high, refiners that turn oil into gasoline are expected to cut production. As refiners cut production, oil companies increasingly risk getting stuck with excess oil supplies. There's already anecdotal evidence of oil companies chartering tankers to store excess oil.

All this is turning financial markets increasingly bearish on oil.

"If we continue to build inventories, and if we have a warm winter like we had last winter, you could see a large fall in the price of oil," said Gary Pokoik, who manages Hedge Ventures Energy in Los Angeles, an energy hedge fund. "I think there is still a lot of risk in the market."

As it stands now, the recent oil-price slump has brought the national average for a gallon of unleaded gasoline down to $2.59, according to the AAA motor club. In the Seattle area, prices per gallon have fallen to $2.856 currently from $3.071 a month ago, a decline of 7 percent, according to AAA.

Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, Verleger said, it's not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily. That could mean gasoline prices as low as $1.15 per gallon.

Other experts won't guess at a floor price, but they agree that a race to the bottom could break out.

"The market may test levels here that are too low to be sustained," said Clay Seigle, an analyst at Cambridge Energy Research Associates, a consultancy in Boston.

On Monday, the oil-producing cartel OPEC hinted that if prices fall precipitously, OPEC members would cut production to lift them. But that would take time.

"That takes six to nine months. If we don't have a really cold winter here [creating a demand for oil], prices will fall. Literally, you don't know where the floor is," Verleger said. "In a market like this, if things start falling ... prices could take you back to the 1999 levels. It has nothing to do with production."

The contract will be officially announced on Tuesday.

DHL is best known for delivering documents and freight, but has evolved into a company that is also involved in logistics and supply chain work on behalf of organisations across the world.

Its deal with the NHS is one of many contracts it has as part of its DHL Exel logistics division, which was formed in 2005.

Market power

DHL Logistics chief executive John Allan told BBC News quality would not be sacrificed to save money.

Staff across the NHS will be watching this privatisation deal, which will be viewed by many as symbolic of what is to come
Unison

"We are hoping to achieve efficiency benefits in buying for the NHS, which they will be able to feed back into patient care.

"But we will be working very closely with clinical specialists - with doctors, with the trusts - to ensure we procure for them precisely the products they want."

Some critics fear that DHL may opt for cheaper, inferior products and that the company will have excessive market power which could lead to small manufacturers suffering.

But Mr Allan told BBC Radio 4's Today programme the doctors and trusts would decide which clinical products to buy.

"Our job then will be simply to get the best possible price we can for the standard of quality they have specified."

DHL had "set out to ensure" its former NHS employees' terms and conditions - including pensions - would be "protected", Mr Allan said.

He added the company planned to create more than 1,000 extra jobs.

The deal is effectively a privatisation of part of NHS Logistics as well as a part of the NHS Purchasing and Supply Agency.

The supplier's former chairman David Hall said it had a good performance history and was not a part of the NHS that "needs tinkering with".

"There are many more important areas that I would have thought would have had the government's attention," he added.

Hundreds of NHS Logistics workers who are members of Unison are already being balloted by their trade union after it was discovered ministers were considering outsourcing the contract.

'Sad day'

The union's head of health, Karen Jennings, said it made "no sense" to break up NHS Logistics.

"This is a very sad day for the NHS," she said.

"Staff across the NHS will be watching this privatisation deal, which will be viewed by many as symbolic of what is to come."

Results of the ballot are due to be announced next week.

The GMB union has said it will support members who want to take industrial action.

Savings promise

The move is the biggest example of what some regard as creeping NHS privatisation.

DHL says it can make savings by reducing the range of products available to hospitals - for example, at the moment hospitals have a choice of 133 different paper staplers to choose from in a catalogue.

Goods and services supplied by DHL will include food, bed linen, cleaning products, surgical and medical equipment and stationery.

Shadow health minister, Stephen O'Brien, said: "By gaining control of the NHS Logistics and most of the NHS Purchasing and Supply Agency, U.S. companies DHL, and its sub contractor Novation, will become responsible for spending £22bn of U.K. taxpayers' money."

Kozlov fell to the ground bleeding from the head and chest and was rushed to hospital, where he died a few hours later after emergency surgery. His driver was killed on the spot.

"Andrei Kozlov died early this morning," Inna Sigeyeva, a deputy chief doctor at Moscow's Hospital No. 33, told Reuters.

His murder plunged Russia's financial establishment into shock. With his department closing banks at the rate of two or three a week, Kozlov had no shortage of enemies and his colleagues said he had paid the ultimate price for his zeal.

"He was at the cutting edge of the battle against financial crime. He was a very brave and honest man and through his activity he repeatedly encroached on the interests of unprincipled financiers," Finance Minister Alexei Kudrin said in a tribute.

Prime Minister Mikhail Fradkov, leading a minute's silence at a cabinet meeting, said Kozlov's death was a great loss.

Anatoly Chubais, chief executive of Russia's electricity monopoly, described the murder as an "impudent challenge" to Russia's political class. "The response of the authorities must be tough, prompt and pitiless," he said.

Only last week, Kozlov had called at a banking forum in the southern city of Sochi for much tougher penalties against bankers found guilty of money laundering.

Russia's financial markets are used to unpleasant surprises. The RTS stock index rallied by 1.4 percent and state-controlled Sberbank, Russia's biggest bank, gained 2 percent in early trading.

Kozlov's killing, with its grim echo of the often violent years of Boris Yeltsin's rule, was uncomfortable news for Putin who has consistently trumpeted the stability he has brought to Russia in the year Moscow heads the G8 group of economic powers.

After overseeing years of rapid economic growth, Putin now wants a trouble-free political climate in which to prepare an orderly presidential succession in 2008.

Al Breach, chief economist at Swiss bank UBS, said the murder could unsettle investors, though it was unlikely to change the overall investment climate.

"It will remind people of political risk before the presidential elections," he told Reuters.

The Kremlin declined immediate comment on Kozlov's killing.

Russia has about 1,200 banks. Many of them are tiny outfits with little capital and banking experts say allegations of malpractice are common.

"They assassinated Kozlov because he withdrew bank licenses. It is horrible that these attacks still happen in Russia. The government must find the killers," Vladislav Reznik, chairman of the State Duma (parliament)'s financial committee, told Reuters.

HIGH PROFILE ATTACK

Russia's banking system grew out of chaos after the collapse of the Soviet Union when violence was a part of doing business. One analyst said the attack showed the sector had still not shaken off its past.

Contract-style killings of wealthy businessmen and bankers were common in the 1990s but they tapered off after Putin came to power in 2000.

Kozlov's killing is the highest profile attack in the capital since Chubais escaped unscathed from an assassination attempt in March 2005 when his motorcade was attacked.

In the only other attacks on top state banking officials, shots were fired through a window in 1997 at the then Central Bank chief Sergei Dubinin.

Kozlov, who was married with three children, started at what was then the Soviet central bank at the age of 24. He rose quickly through the ranks to become first deputy chairman in 1997. He left two years later for a spell in the private sector, rejoining the central bank in April 2002.

Singapore had originally blocked the activists from attending the September 11-20 meetings on the grounds they posed a threat to security and public order.

But in an apparent attempt to placate the monetary chiefs, who along with the European Union have criticized the city-state's tight security, Singapore said on Thursday it was willing to reconsider the ban on the activists.

"The IMF/WB have asked the government to allow in the 27 activists. The government has responded that if these activists travel to Singapore, we will assess at the point of entry whether they pose a security or safety risk," the Singapore 2006 Organizing Committee said in a statement.

"If we judge the risk to be acceptable for that particular activist, we are prepared to allow him or her in. However, we cannot guarantee that all 27 activists will be admitted to Singapore," it said.

The statement was issued shortly after World Bank President Paul Wolfowitz met with Singapore Prime Minister Lee Hsien Loong.

"This statement is not a sufficient response to give the individuals in question the assurance that they would be granted access," a World Bank official told Reuters.

"We have accredited these individuals based on clearance by their respective governments and we believe they should be able to participate in our meetings."

Wolfowitz had said earlier that he hoped the ban on the activists was not a case of censorship, adding that it might be in breach of a 2003 agreement with the city-state.

But the Singapore 2006 committee said the memorandum of understanding signed between IMF/WB and the Singapore government "obliges Singapore to take all necessary measures for the safe passage of all persons in and out of Singapore."

It said the government takes this duty seriously in view of the international security environment.

Antonio Tricarico of Italy's Reform the World Bank said that according to the list, Singapore's objection to his accreditation was based on security and law and order considerations.

"Technically, that means terrorism. This is absurd," he told Reuters. Tricarico is the first person on the blacklist, a copy of which was obtained by Reuters.

Earlier, Singapore police said they had detained three Singaporeans who were planning to distribute flyers criticizing the IMF and World Bank and had seized their computers.

Police spokesman Mohamed Razif said they were investigating the men under legislation stating that anyone possessing materials which contain "any incitement to violence or counseling disobedience to the law" would be jailed for up to three years or fined, or both.

On Wednesday, Singapore deported two Filipino activists who had been planning to join anti-IMF protests.

South American diesel would be supplied by Venezuela - the world's fifth-largest oil exporter - as fuel for some of the capital's 8,000 buses, particularly those services most utilised by the poor.

The exchange arises from the high-profile offer President Chávez made to London during his visit to City Hall in May. Since then officials have been meeting in London and Caracas to bring the barter deal about.

Yesterday Mr Livingstone confirmed that the agreement was in the making, and finer details were being thrashed out.

"We have poor people in London. We are the richest city in Europe and yet we have the disgrace of child poverty," he said. "They have a vast population living in slums, and we have a lot of experience in terms of housing policy and all the things we know about how to take a city and make it function."

But opponents on the London assembly, who want to question the mayor at City Hall today, are unconvinced. Angie Bray, the leader of London's Tories, dismissed the scheme as a "socialist propaganda fest".

She said: "Ken and the president of Venezuela should be ashamed of themselves for even contemplating such a proposal. I'm sure the Venezuelans who struggle below the poverty line, many of them critically so, would be shocked at the cynical siphoning off of their main asset to provide one of the world's most prosperous cities with cheap oil."

Mike Tuffrey, the leader of the Liberal Democrats in London, said the deal smacked of aid, not trade. "This reduces us to the status of a third-world barter economy. We should be weaning ourselves off fossil fuels, not trying to get them at subsidised prices from Venezuela."

Details of the deal under discussion emerged in a memo seen by the Guardian that described the progress of meetings between the mayor's most senior officials, embassy officials and figures from PDV UK, the Venezuelan state oil company.

It said London would receive an unspecified amount of oil as part of the 1.3m barrels needed to run the buses each year. In return the mayor's aides would promise to "actively and efficiently promote Venezuela's image in the UK" by highlighting the oil deal's benefits for London's poor and by boosting tourism with advertisements on buses.

Caracas, it said, would also benefit from help in running its transport system and in fighting crime, using London's expertise in the use of CCTV, fingerprint technology and neighbourhood policing. Consultants would help with waste disposal, air quality and adult education.

Among those who could go to Caracas to give advice are Mr Livingstone's economics director, John Ross, who has been involved in the talks, and John Duffy, London's waste disposal and environment tsar.

The memo revealed that the president's initial proposal, to supply heating oil to "young people, schools in working-class areas and the homes of elderly people" was dropped because too many UK authorities would be involved. Officials preferred the bus plan for its simplicity and its ability to help the poor directly. They might receive a "special identity card" to access cut-price bus tickets, thereby sharing the fare subsidies that already apply to children and pensioners.

The practicalities of delivering the oil were also discussed. One option involved UK suppliers Shell, Chevron and Conoco providing the oil to London and being reimbursed with an equivalent amount from PDV UK in Venezuela.

Mr Chávez has repeatedly been accused of using oil to increase his own influence. Last year Venezuela gave more than 45m litres at 40% below market prices to the poor of Boston and New York. A group of Caribbean countries also received cheap oil.

But he also favours barter arrangements. Cuban doctors are working in the poorer areas of Venezuela in exchange for the supply of cheap oil to their country.