Oil prices produce biggest fall in FTSE 100 for nearly three months

The FTSE 100 ended down 50.9 points, or 1.1 per cent, at 4,564.5 last night, its lowest level since the end of September and the biggest fall since 6 August.

The slide came against a backdrop of a steep fall in the dollar and higher prices for oil and gold, leading to fears of slowing global economic growth.

The dollar fell against the euro for a ninth straight day - the longest losing streak since January 2003 - on concern at a jump in the oil price. US light crude set a fresh peak of $55.67 a barrel as Norwegian oil employers threatened to halt production, raising fears of supply shortages during the winter. The dispute was later settled, and the price of oil settled back.

Steven Englander, a currency strategist in New York at Barclays Capital, said: "That makes a change; just about everything that could be going wrong for the dollar is going wrong. Expectations of growth have been lowered as oil prices have run-up."

The dollar fell to $1.2782 per euro at noon in New York, from $1.2682 on Friday. It also dropped to an eight-year low of $1.1984 against the Swiss franc and fell to $1.8410 to the pound, down 0.7 per cent.

Market observers said the weakening dollar compounded worries that rising energy prices would choke off profits and discourage the consumer.

John Smith, the investment director at Brown Shipley, said: "Nervousness about the US election has hit the market, along with oil and dollar issues. Any company that requires US expenditure and earnings, like Smith & Nephew, is being affected. We are going to see slower growth next year, but I still think companies will be able to increase their dividends."

UK gilts rose on the speech by Richard Lambert of the Bank of England, suggesting that interest rates may not need to rise in the current cycle.

US Treasury notes picked up too, on speculation that a weakening dollar will prompt purchases by foreign central banks. Paul Calvetti, the head of US Treasury trading in New York at Barclays Capital, said: "They have dollars and they put them to work in Treasuries."

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