Markets hit by record losing streak

Fears over war see FTSE 100 fall for ninth successive day to lowest level for seven years

The stock market notched up the longest losing streak in its history yesterday as fears of an impending war with Iraq triggered an unprecedented ninth successive daily fall in share prices.

The FTSE 100 index of leading shares has seen £80bn wiped off its value since 13 January. Anxiety is growing at the impact on already fragile global markets of a conflict. There are also fears the price of oil could soar if an invasion of Iraq leads to prolonged turmoil in the Gulf.

The FTSE 100 closed down 55.8 points at 3622.2, its lowest in more than seven years. The wider FTSE AllShare index has not experienced such a sustained fall since November 1974, when Britain was struggling towards the end of the previous massive bear market. Gold, a mainstay when uncertainty hangs over stock markets, hit a six-year high, reaching $364.7 an ounce. Anxiety at the effect of war on the American economy saw the dollar fall to three-year lows against the pound and the euro.

Hilary Cook, director of investment strategy at Barclays Private Clients, said: "There is the prospect of war and the oil strike in Venezuela which has not helped. The feeling at the end of 2002 was that things were getting better. But it has just taken a big about-turn, with pension funds not buying because they are worried about their solvency ratios and private clients running for the hills."

The fresh falls in the stock market in recent days has prompted a feeling in the City that the direction markets will take in 2003 is impossible to predict. Jonathan Bloomer, the chief executive of Prudential, said: "2003 is the most challenging year I have looked forward into for a long, long time. There is so much uncertainty about where the stock market is going. There is economic risk from consumer confidence, and political risk."

Pension funds and life assurance companies are thought to account for much of the current wave of selling. They have become worried that as the value of the equities they hold falls, they will be unable to meet promises of future pay-outs to policyholders.

The Financial Services Authority, the City watchdog, has recently warned that if the FTSE 100 falls below 3,500, further problems would be triggered for certain pension funds and life companies with some forced to sell shares to meet the solvency rules. Rumours were circulating yesterday that one insurer had been forced to sell shares to meet these rules, feeding the drop in prices.Because pension funds and life assurers control such a large chunk of the stock market, more forced sales could drag equity prices down even further.

Concerns over the war and a potential oil shock have also dogged the United States. Afternoon trading on Wall Street saw the Dow Jones fall by 33 points to 8285. Robert Parkes, UK equity strategist for HSBC, said: "Iraq is an ongoing issue and there are worries over consumer debt and a potential drop in housing prices."

He added that he did not expect a drastic collapse in house prices or shares, saying: "The market is fearing the worst, but it has been supported at around this level before. We think there is still support for it."

Most City fund managers, whose business has been eaten away by three years of falling stock markets, are holding out hope that the FTSE 100 index will still end this year at a higher level than it started. Ms Cook said: "We think it will go to about 4,400 because equities look very cheap. But if people are not buying, they are not buying."