The decision by the European Court of Justice also is expected to have wider ramifications across Europe, where many governments have tried to protect companies they see as vital to their economies from takeovers, particularly foreign ones.

German politicians and labor unions had argued that the law was needed to protect local jobs but the court, the EU's highest, said it was illegal. It ruled that the law limited "the free movement of capital."

The court also ruled that it discourages foreign investors from taking a stake in Volkswagen because the German federal government and the region of Lower Saxony — a major shareholder — are able "to exercise considerable influence" over the company.

"This situation is liable to deter direct investors from other member states," a court press statement said.

The law caps a shareholder's voting rights at 20 percent, whatever the size of its holding.

In its ruling, the court also rejected the right of both the German federal government and the region of Lower Saxony, which holds 20.36 percent of Volkswagen, to appoint two members of the board as long as they are shareholders of the company.

For Porsche, which has built-up a 31-percent stake in the company over recent years in anticipation that the VW law would be struck down, the ruling gives it carte blanche to take a wider stake.

Porsche AG Chief Executive Wendelin Wiedeking said his company was "naturally very interested in being able to fully exert our voting rights" in Volkswagen. However, he did not refer to the possibility of a takeover — which many analysts expect.

Between them, Porsche and Lower Saxony already hold more than 50 percent in Volkswagen — meaning the door is closed for any would-be foreign suitors.

The court said Germany did not explain why it needed to protect workers by keeping "a strengthened and irremovable" stake in Volkswagen. It also rejected German government arguments that its special position protected minority shareholders.

Lower Saxony's conservative governor, Christian Wulff, said the state government accepted the decision.

He said that Lower Saxony would stand by its stake in Volkswagen and that its aim was "for VW to be a successful company with high sales and satisfied employees with secure jobs, particularly at sites in Lower Saxony."

"The state government wants to ensure this along with the other major shareholder, Porsche," Wulff said.

The ruling is a triumph for the European Commission, which has fought several battles against European governments and their "golden shares" in critical companies.

European Union regulators take their cue from rights enshrined in the EU's founding treaty that proclaim basic economic freedoms such as the right to do business anywhere in the 27-nation bloc.

That right is blocked if governments interfere with companies, the EU executive said.

It took Germany to court in 2005, and has since lined up or threatened cases against Spain over allegations it is protecting energy companies like Endesa SA, Italy for blocking a takeover attempt of highways company Autostrade SpA, and against Poland for hindering Italy's UniCredit SpA from consolidating its grip over a local bank.

Volkswagen — German for "people's car" — is one Germany's best-known companies, renowned for providing well-paid blue-collar jobs. From the ashes of World War II, it has become Europe's largest automaker, with brands from the more affordable Seat and Skoda to the upscale Audi and the stratospherically priced speedsters hand-built by Lamborghini.

"Today's ruling of the European Court of Justice is good news for the internal market and the free movement of capital," Commission spokesman Oliver Drewes told a briefing in Brussels.

The law's demise could also end decades of cosy ties between management and labor at VW in a system called co-determination that gives workers a major say in how the company is run.

The court ruled as expected that the Volkswagen Law broke EU rules because it capped voting rights at 20 percent and let VW's home state of Lower Saxony veto strategic decisions with just 20 percent of the votes.

Porsche welcomed the ruling that lets the maker of 911 sports cars exercise all of its VW voting rights via its nearly 31 percent stake in Volkswagen ordinary shares.

Porsche has said it has secured enough options to let it "significantly" raise its holding in VW but has declined to say whether this meant it could already gain majority control.

Oil futures prices fell Monday amid concerns about economic growth and on profit-taking ahead of the November contract's expiration. News of a possible ceasefire between Turkey and Kurdish rebels in Iraq added to the selling.

The stock market's sharp downturn Friday has reignited concerns that the economy might be slowing, cutting demand for oil and petroleum products.

But traders are also selling to lock in profits from a rally in which oil futures jumped almost 14 percent in less than two weeks. The November crude contract, which expires Monday, is trading more than $1.20 higher than the December contract. November crude reached a record $90.07 a barrel on Friday morning before declining to settle lower.

"You get to $90, and people say 'Here's a nice chance to take some profit,'" said Kevin Saville, managing editor for the Americas energy desk at Platts, the energy research arm of the McGraw-Hill Cos.

Prices were already down sharply in morning trading when Iraq's president announced that Kurdish rebels will announce a cease-fire Monday night; the news added to crude's decline. Oil prices rose last week in part on concerns that Turkish forces would enter Iraq in search of Kurdish rebel bases. Crude traders worried the move would cut oil supplies from northern Iraq.

Earlier Monday, the Turkish military said eight of its soldiers were missing and 12 dead after an ambush by Kurdish rebels.

Light, sweet crude for November delivery fell $1.92 to $86.68 a barrel on the New York Mercantile Exchange. Before the Iraqi announcement, the contract was down about $1.60.

Other energy futures followed crude lower. November gasoline fell 4.90 cents to $2.1197 a gallon, and November heating oil fell 2.84 cents to $2.3022 a gallon.

November natural gas fell 20.9 cents to $6.832 per 1,000 cubic feet. Natural gas prices are under pressure from unseasonably warm temperatures in the north and Midwest and a forecast that this winter will be warmer than normal.

In London, December Brent crude dropped $1.27 to $82.52 a barrel on the ICE Futures exchange.

Analysts are beginning to debate whether last week's foray by crude futures above $90 a barrel marked the peak of the bull market. Analysts are similarly split over whether the underlying supply and demand fundamentals justify such high prices.

Predictions about the future of oil prices range from $60 to $120, depending on whether the analyst believes forecasts oil supplies will tighten amid growing demand in the fourth quarter. Many analysts think prices have risen sharply in recent weeks due to speculative investing. Indeed, data released on Friday shows speculative buying of oil contracts increased last week.

But other analysts argue that the fundamentals clearly support higher prices.

"The bashing of speculators in the oil market by uninformed and biased watchers of the energy prices and energy markets is the new sport for those that still are in denial about the real fundamentals facing the market," wrote Phil Flynn, an analyst at Alaron Trading Corp., in Chicago, in a research note.

The demand side of the oil fundamentals equation could be affected by an economic slowdown. Some investors worry Friday's sharp drop in the stock market reflects an overall cooling in the economy.

At the pump, meanwhile, gasoline prices continued their delayed reaction to the recent increase in oil prices. The national average price of a gallon of gas rose 0.2 cent overnight, to $2.819 a gallon, according to AAA and the Oil Price Information Service.

Gas prices have jumped 6.2 cents over the last week. Many analysts expect gas prices to move even higher to catch up with crude prices.

The IMF maintained its previous forecast, made in July, for 2007 global economic growth of 5.2 percent, but lowered the forecast for 2008 by 0.4 percentage point to 4.8 percent.

"While underlying fundamentals supporting growth are sound and the strong momentum in increasingly important emerging markets is intact, downside risks from the financial markets and domestic demand in the United States and western Europe have increased," the IMF said in its semi-annual World Economic Outlook.

The IMF said the global expansion was now firmly led by China, whose economy is expected to grow by 11.5 percent in 2007 and slow slightly to 10 percent next year.

The IMF's largest downward revisions in its growth forecasts were in the United States and in countries affected by the troubles in the U.S. subprime mortgage market, especially Canada, Mexico and some Asian economies. It said the U.S. economy was set to grow just 1.9 percent next year, a sharp downward revision from the 2.8 percent forecast in July.

The problems in the U.S. subprime mortgage market, which has seen a wave of foreclosures, spread quickly worldwide because the loans were packaged into complex financial securities and resold to investors.

The turmoil triggered a tightening of credit conditions in August, prompting central banks around the world to respond with massive injections of liquidity to ensure the global financial system did not feeze up. The U.S. Federal Reserve cut interest rates sharply in an attempt to limit economic damage from the credit crunch and market turbulence.  

A weakening U.S. dollar, low U.S. crude inventories and increased buying by investment funds also supported prices, counterbalancing expectations of higher inventories in the weekly U.S. supply report.

The Turkish government's decision Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked the worries about potential interruptions to oil supplies.

"Whenever there is any escalation in political tensions in the Middle East, oil markets become concerned," said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney. "There is production and there are pipelines that people worry may be affected if there are any issues in Iraq."

There have been several skirmishes along the Turkey-Iraq border already. Although oil coming out of the region has been erratic, a total disruption would send prices higher, analysts said.

After surging in earlier trading to intraday highs near $87 a barrel, light, sweet crude for November delivery on the New York Mercantile Exchange rose 46 cents to $86.59 in electronic trading by afternoon in Europe. The contract had jumped $2.44 to settle at a record close of $86.13 a barrel Monday.

Brent crude advanced 60 cents to $83.35 a barrel on the ICE Futures exchange in London.

"Eight-six dollars is a historically high level. ... Many people are looking at this level for the first time so it's very difficult to say what will happen next," said Tetsu Emori, commodity markets fund manager at ASTMAX Futures Co. in Tokyo. "All the factors in the market are bullish, there are no bearish factors except maybe that the market looks like it's been overbought, technically."

Despite the gains, Nymex oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Technical buying by investment funds is also driving oil's record run, analysts say. Data released Friday showed that speculative buying of oil contracts increased last week.

"Particularly because the oil price has been so strong, that in itself may have attracted some speculators to oil," Moore said.

Many investment funds automatically buy or sell oil futures when prices hit certain levels. In recent days, as oil has pushed into record territory, several of these resistance prices levels have been broached. That triggers new buying, driving prices even higher.

Analysts also cited the weak U.S. dollar—which makes crude cheaper for traders using other currencies—as a factor in higher commodity prices generally. The dollar lost ground Monday to most major currencies before recouping some losses Tuesday.

Expectations that Wednesday's U.S. inventory report would show crude and gasoline stock increases failed to dent the climb. Vienna's PVM Oil Associates said forecasts called for "a rise in the U.S. crude stocks of about 1.4 million barrels ... (and) an extra 700,000 barrels" for gasoline, while distillates—diesel and fuel oil—were expected to diminish by 350,000 barrels.

Heating oil futures were up 0.4 of a cent, fetching $2.3112 a gallon while gasoline prices rose by nearly a penny to $2.1667 a gallon. Natural gas futures were up 2.4 cents to $7.475 per 1,000 cubic feet.

Its shares fell more than 2 percent in morning trading.

The El Segundo, Calif.-based company said net income for the quarter ended Sept. 30 slipped to $236.8 million, or 61 cents per share, from $239 million, or 62 cents per share, in the year-ago period. Latest-quarter results included charges of about $40 million related to the company's product recalls covering merchandise that contained lead magnets or bore lead paint.

Sales rose 3 percent to $1.84 billion from $1.79 billion a year ago, mainly helped by the weaker dollar.

Analysts surveyed by Thomson Financial had expected profit of 70 cents per share on revenue of $1.91 billion.

Its shares fell 48 cents, or 2.1 percent, to $21.97 in morning trading Monday.

Since August, Mattel has announced three separate recalls of some 21 million toys because of dangers to children from lead paint or from tiny magnets that can be harmful if swallowed.

The majority of the toys were recalled because they featured the small magnets.

Last month, the company apologized to the Chinese government, acknowledging that the problem was a design flaw and not the fault of Chinese manufacturers.

"Despite the challenges the company faced during the third quarter, the business has performed fairly well, even with some supply chain disruptions that impacted our sales during the quarter," said Robert A. Eckert, chairman and chief executive. "U.S. Barbie performance was soft and remains an area of focus, although a good portion of the decline in the quarter was directly related to the supply chain disruptions."

Eckert said international sales have continued to drive growth, while the U.S. was down slightly in the quarter. Mattel did say, however, that it saw continued strong performance from its core Fisher-Price and Disney/Pixar "Cars" properties.

The "Cars" line of toys and the addition of Radica games and puzzles helped drive a 29 percent increase in sales in the toy maker's Entertainment toys business unit.

Global Barbie sales fell 4 percent, with increases in international sales partially offsetting declines in domestic sales of the fashion doll.

In all, sales for Mattel's Girls and Boys Brands business unit were $1.14 billion, up 6 percent from the year-ago quarter, the company said.

Worldwide sales for the Other Girls Brands unit tumbled 10 percent from the year-ago quarter, with a drop in sales of toys from the Polly Pocket! brand driving the decline.

The company's Wheels unit posted a 9 percent increase in global sales during the quarter, driven by sales of its Hot Wheels and Matchbox brands.

"The critical question is the price level of homes in the United States, which are almost certainly going to fall," Greenspan said, as the hefty inventory of unsold homes continues to drive down prices. "What we don't know at this stage is whether, in fact, the decline in home prices will be a large one or a modest one," he said.

Given the current climate, the odds that the United States will skirt a recession now look better than 50/50, Greenspan said. In March, he put the odds of a recession over the next six to nine months at one-third, but that could be offset by stock market prices if they continue to rise, he said.

Greenspan also addressed the credit crisis that roiled markets this summer, noting that credit market adjustments were "an accident waiting to happen" given the low level of credit spreads for such a long period of time.

"History always suggests that that does not last," Greenspan said. "If it wasn't subprime, it would have been something else."

The United States came into the credit crisis amid a "fairly strong" global economic upswing, and talking about the U.S. economy without the worldwide context is "no longer relevant," he said.

Turning to China, Greenspan said growth there has been "quite remarkable," adding that "nobody is fully cognizant or understands why they have done so well for so long." China has moved dramatically toward capitalism, he said, and even though its economy appears to be "overheating," the country continues to progress.

Greenspan also said rising Chinese inflation was of little significance, noting that much of the increase was due to rising food prices.

But, he added, "at some point, they've got to slow down" and other areas of eastern Asia could begin to successfully compete with the country. At least through the Olympics, however, China "should do very well," he said.