Shares fall and oil prices rise on fears of war

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Stock Markets fell sharply yesterday while oil prices rose on renewed fears of war in Iraq and concerns about a shortage of US oil supplies.

The FTSE 100 index of leading shares ended the day 4 per cent lower as tensions over Iraq and fresh worries about corporate earnings unnerved dealers.

The 159.7 point fall in the blue-chip index took it decisively below the psychologically-important 4,000 level, the FTSE 100 closing at 3865.4.

French shares ended the day at four-year lows while on Wall Street the Dow Jones Industrial Average and the S&P 500 both ended in negative territory.

Oil prices meanwhile spiked upwards, with Brent crude ending up 35 cents to $28.31 a barrel. The rise was prompted by US data showing a big drop in pre-winter inventories and expectations that Opec will maintain its curbs on output when the oil producers cartel meets in Osaka today.

Weekly figures from the US Department of Energy showed a bigger-than-expected drawdown on crude stocks. Meanwhile, Opec ministers are expected to keep the ceiling on output unchanged after persuading the world's biggest oil producer, Saudi Arabia, that this was necessary to keep prices high.

Ahead of today's Opec meeting in Japan, Kuwait's acting Oil minister, Sheikh Ahmad al-Fahd al-Sabah, said: "We will continue with the same production as we have now."

Oil prices had tumbled by as much as 5 per cent on Tuesday after Iraq's offer to give United Nations weapons inspectors unrestricted access. But the dismissive response of the US and UK governments to the offer helped reverse that fall.

Equity strategists said that stock markets had also got over-excited about the apparent easing of tensions over Iraq. "You can still see there's an awful long way to go before we see any rebound and we could well see 3,600 on the FTSE over the next few weeks," said Henk Potts of Barclays Private Clients.