London shares return to losing streak amid uncertainty

The London stock market resumed its losing streak yesterday as the FTSE 100 drifted lower on continuing uncertainty over war with Iraq, the global economy and fears that UK consumer spending is weakening.

The index of leading shares closed 6.2 points down at 3483.8, its 12th day of decline in 13 days, after being almost 100 points lower at one stage.

On Wall Street, the benchmark Dow Jones index ended the day in positive territory after the Federal Reserve opted to keep US interest rates on hold at 1.25 per cent. The widely expected decision helped the Dow recoup an early 143-point fall to end up 21.9 at 8110.7.

The Fed said that rising oil prices and geopolitical risks ­ a reference to a possible war with Iraq ­ have restrained spending and hiring by businesses. However, "as those risks lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to an improving economic climate over time", it said.

Analysts said investors were increasingly unsettled by the likely aftermath of a possible US-led attack against Iraq after President George Bush's State of the Union speech heightened fears that a war was inevitable.

"Now we're focusing on the post-war environment and it's not too pretty," said Clive McDonnell, strategist at Standard & Poor's. "War in Iraq will destabilise the Middle East. Bush is likely to win the battle in Iraq but lose the bigger war."

In the UK the mood was gloomy as investors continued to fret about insurance companies dumping shares to stay within solvency requirements. There was some relief when Britannic said it had taken action to maintain solvency. But bank shares suffered on bad debt fears.

"Until the uncertainty in the Gulf is resolved I can't see any impetus for anybody to buy," Jeremy Batstone, a director of NatWest Stockbrokers, said. "Who is going to buy when you don't know how long it will last, how wide its scope will be and how messy?" Robert Parkes, UK equity strategist at HSBC, added: "Uncertainty is the big factor. There are geopolitical concerns about Iraq, terrorism and the global economy. On the domestic side there are concerns about the housing market and consumer spending."

But there was some optimism in London yesterday. Mr Parkes said: "When the market is being driven by fear it could drift lower. But we feel there is strong support around these levels." Mr Batstone agreed: "In the very near term I can't see any catalyst to get investors buying again. But I'm sure that at the end of 2003 we'll say this was a great buying opportunity."

Wall Street's move into positive territory helped the dollar pare some losses against the euro last night to trade at $1.0835 per euro, after earlier falling to fresh three-year lows of $1.0899. Gold prices, which are at six-year highs amid war fears, also eased in late trade.

But oil prices jumped another 3 per cent, as a drop in US fuel stocks combined with worries about the Gulf. The price of a barrel of Brent Crude for March delivery rose 75 cents to $31.02.