Surging oil price hits world markets

A surge in the oil price, caused by the escalation of Middle East tensions, hit the financial markets yesterday. United States shares were the worst affected, but the impact rippled out to other world exchanges.

A surge in the oil price, caused by the escalation of Middle East tensions, hit the financial markets yesterday. United States shares were the worst affected, but the impact rippled out to other world exchanges.

Oil companies gained, with BP Amoco overtaking Vodafone in value on the London Stock Exchange, but yesterday's events sent Wall Street tumbling in a day that deserving of the "roller-coaster" tag.

The price of Brent crude oil jumped to a new 10-year high, with the one-month futures price up by as much as $3.43 to $35.22 a barrel in London.

The oil price reaction, and a profits warning from Home Depot, America's biggest do-it-yourself retailer, sent the Dow Jones almost 320 points lower to 10,094 in mid-morning trade. It staged a partial recovery, then dived 359.97 to 10,053.82 in theafternoon. The Nasdaq also fell after opening 75 points higher; it was later down 41.51 at 3,126.98.

The turmoil spilled over elsewhere, with the FTSE 100 closing just 14 points higher at 6,131.9 after a day that saw the index first soar 94 points then plunge to 49 points below its opening level.

The turmoil follows a series of declines in New Economy stocks, especially in telecoms. The fall in telecoms stocks has raised questions about prospects for several planned multi-billion-pound flotations. So far none has been cancelled, but some are being reduced and others look doubtful.

Spain's Telefonica, for example, had been expected to float 20 per cent of its Moviles wireless unit, but it has now formally cut the offering to 10 per cent.

The biggest casualty will probably be France Telecom, which paid Vodafone £27bn for Orange in the summer, raising its net debt to 60bn euros (£35bn). The float of about 20 per cent of so-called New Orange, including FT's own mobile assets, was expected to raise 20bn euros or more. A senior capital markets source said: "That's not achievable right now."

The market volatility has also hit a number of rights issues and their sponsors. In London, shares in Cedar, the software group, closed down 32.5p at 472.5p, forcing Merrill Lynch to buy shares at 600p as the underwriter of a £65m rights issue. Merrill and its co-underwriters face a paper loss of £13.4m.

Collins Stewart, the broker, was also left nursing losses yesterday as the underwriter of a rights issue launched by Redbus Interhouse, the Web exchange firm. The issue gained only 91 per cent support, leaving Collins Stewart buying about one million shares at 280p, against yesterday's 277.5p closing price.

IXEurope, the "net hotelier" providing secure buildings for Web servers, pulled a planned 150m euro high-yield bond issue, although it said its flotation would still go ahead next month.

Kevin Gardiner, equity strategist at JP Morgan, said: "You have to distinguish between the overall market and the new economy sectors. The telecoms sector has a problem and it isn't going to go away in a hurry."

However, this is seen as a healthy correction by many analysts. Michael Hughes at ING Barings Asset Management said: "We're getting to the stage now where we have a more rational valuation basis for both. There's actually a bit of value coming back into the New Economy areas."