THE terrorist attack that ripped the heart out of the world's financial centre could have a huge impact on the global economy.

According to City experts, the US economy is now almost certain to plunge into recession before the end of the year, dragging the UK and the rest of the world with it.

Only a dramatic and coordinated round of interest rate cuts across the UK, Europe and the US could slow the process.

The attack could also have a large effect on the price of oil, especially if there is a connection with the Middle East.

The price, which on Tuesday closed up $1.61 a barrel at $29.06, after rising as high as $31.05, was stabilising yesterday, and trading at $28.71 at midday.

Julian Lee, senior energy analyst at the Centre for Global Energy Studies, said: "In the very short term I expect prices to remain volatile.

"However, I expect Opec will step in very quickly to make up any shortage in any event of a physical stop in supplies."

Meanwhile, the global insurance industry is bracing itself for billions of pounds of claims as a result of the attacks.

Insurance analysts have already predicted that the payout on claims could make the disaster the most expensive in history, costing the industry about £27bn.

That would be double the £13.5bn worth of damage caused by Hurricane Andrew in 1992.

All types of insurance, including aviation, terrorism, property and lost business, will be facing claims.

A spokeswoman for the International Underwriting Association said it was too early to say what impact the disaster would have on policy premiums for individuals and businesses, but it was likely that, in the long term, firms would be re-evaluating the cost of their cover.

The full impact on the world markets is not expected to be known until the New York Stock Exchange reopens, scheduled to take place in some form today.

However, John Pearson, associate director at Stockton stockbrokers Gerrard, said he thought the markets would want to make a point.

He said: "Stock markets don't like being unable to deal, and they usually make up for it when they reopen.

"As a result, we could see a surge in share values when the US markets reopen.

"There is likely to be an initial downward reaction, but then the markets will bounce back to prove they won't give in to terrorism."

On the cost of insurance, Mr Pearson said: "The US Government will probably pick up the tab in some form or other, and then rebuild the twin towers bigger in defiance."

Business leaders have estimated that the economic damage to the UK could be substantial.

Britain exported £17.9bn-worth of goods to the US last year, while imports in the other direction were worth £19.15bn.

Business leaders said it was impossible to estimate how industry would be affected by the outrage.

Peter Bishop, acting chief executive of the London Chamber of Commerce, said: "Given the close links between London and New York as the world's two leading financial centres, the economic damage of this terrorist attack is likely to be considerable.

"However, the greatest weapon we can use to fight terrorism, and the greatest tribute we can pay to those who lost their lives, is to ensure that business resumes as early and fully as possible."

The uncertainty provoked by Tuesday's attack was reflected on the FTSE 100 Index in London, where close to £21bn was wiped off the value of Britain's leading companies in the first ten minutes of trading.

But the index recovered and, by the end of the day, had risen 136.1 points to close at 4882.1

Despite the recovery, the Footsie was still down 151.6 points on its closing price of 5033.7 on Monday.

The Bank of England and the Financial Services Authority said UK markets had operated in an orderly way.