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 Investors fled the dollar after a surprise move by the U.S. Federal Reserve on Sunday to provide cash to financially squeezed Wall Street investment houses pushed the battered greenback deeper into multiyear lows against the yen.
"The Fed's move overall will help the liquidity of the U.S. dollar, and that will really further soften the dollar," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "Meanwhile, investors seem to be just following the mantra of buying oil and commodities to hedge against the falling dollar and inflation."
Light, sweet crude for April delivery spiked to a record $111.80 a barrel
-- up $1.59 from Friday's close -- in electronic trading on the New York Mercantile Exchange, midafternoon in Singapore. It later slipped back to $111.61 a barrel.
The contract's previous trading high was set earlier Monday at $111.42 a barrel. On Friday, the contract fell 12 cents to settle at $110.21 a barrel.
Analysts blame the weak dollar for oil's recent rally. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak.
Interest rate cuts in the U.S. further weaken the dollar and have helped drive oil's rise. In an extraordinary weekend move, the Fed cut its discount rate on Sunday by 25 basis points to 3.25 percent. The Fed is also expected to cut the benchmark federal funds rate at its regularly scheduled monetary policy meeting on Tuesday.
"The inverse link between the dollar and oil prices seem to be strengthening. While we have new records for oil almost daily now, we're also seeing daily new record lows for the dollar," Shum said.
The same dynamic has sent gold, another prime destination for investors worried about the falling dollar and rising inflation, to record prices. On Monday, gold rose 3 percent, or nearly $30, to a record $1,032.35 an ounce.
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 Shum said the surge in investor demand for commodities as a hedge against inflation has created a self-fulfilling cycle that causes prices to keep rising.
"When there is more liquidity, it will raise inflation. So investors pump more money into oil as a hedge, and that further fuels inflation," he said. "It points to the risk in the oil market that the fundamentals don't really support such continual strengthening in pricing."
Equities investors also sought refuge from Asian stocks, which declined sharply Monday after the stunning collapse of Bear Stearns Cos., one of the world's largest investment banks.
JPMorgan Chase & Co. agreed Sunday to buy Bear Stearns for $236.2 million in a deal aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.
But investors chose to see the move as a sign that fallout from problems in the U.S. housing market is far from over.
On Monday in Tokyo, Japan's benchmark Nikkei stock index plunged 3 percent, while in Hong Kong the Hang Seng fell nearly 5 percent. Markets in South Korea, Singapore, Australia and New Zealand also fell.
In other Nymex trading, heating oil futures rose 3.71 cents to $3.1836 a gallon while gasoline futures jumped 4.03 cents to $2.7297 a gallon. Natural gas prices added 22.2 cents to $10.09 per 1,000 cubic feet.
In London, Brent crude futures rose $1.38 to $107.58 a barrel on the ICE futures exchange.
[Associated Press; By GILLIAN WONG]
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