Oil fears drag Footsie into the red

SHARES sank deep into the red and oil prices surged past $110 a barrel yesterday as the crisis in Libya showed no sign of easing.

The cost of Brent crude raced ahead amid more reports of bloodshed and violence and as the Libyan chaos forced foreign energy companies to suspend production.

London's FTSE 100 index closed more than 1.2 per cent lower, down 73.23 points at 5,923.53 marking a fourth consecutive day of losses.

Howard Wheeldon, strategist at BGC Partners, said: "Geopolitical fears continue to grow rather than subside and as long as that occurs, then the price of oil will continue to defy normal demand cycles.

"Once the imported inflation of the higher price of oil takes hold through virtually the whole of manufacturing and services, then it acts as an unfortunate tax on the consumer."

The Dow Jones industrial average on Wall Street fell more than 50 points in early trading as it too suffered from fears over the political unrest, while sentiment was also hit by technology giant Hewlett-Packard's move to warn over the 2011 outlook in after-hours trading on Tuesday.

Markets across the globe are suffering as investors fear that a rise in the price of oil could derail the economic recovery.

Libya holds the most oil reserves in Africa and is the world's 15th-largest crude exporter at 1.2 million barrels per day.

In events closer to home, the pound rose against the dollar after minutes showed a third member of the Bank of England's rate-setting committee voted for a hike in borrowing costs earlier this month.

The other six members, including Governor Mervyn King, voted in favour of no-change, but economists said the report fuelled speculation that rates could rise in May. Sterling reached a 2011-high against the dollar at $1.62.

Commodity-based stocks were hit by the uncertainty in Libya as Antofagasta dropped 70p to 1,313p and Xstrata shed 62p to 1,347p.

Drinks can maker Rexam delivered the biggest fall in the FTSE 100, despite detailing a 45 per cent rise in full-year underlying profits to 412 million for 2010. The figures were ahead of market expectations, but Rexam's shares have enjoyed a strong run in recent weeks and the stock fell 21.6p to 348.4p.

The UK's part-nationalised banks were in the spotlight after the Qatari prime minister signalled interest in buying part of the UK government's stakes in Lloyds Banking Group and Royal Bank of Scotland in a press conference after talks with David Cameron.

RBS, which is today expected to report losses of 700m for 2010, closed 0.4p lower at 47.3p. Lloyds - predicted to reveal profits of 2 billion tomorrow - fell 0.8p to 65.5p.Builders' merchant and Wickes owner Travis Perkins rose in early trading after it revealed a 20 per cent rise in underlying profits and said the new financial year had started well.

Among the Scottish stocks, Banchory-based oil and gas explorer Xcite Energy ended the day 1.9 per cent higher, up 6.5p at 344.5p, after selling 1.48 million shares to equity investor Yorkville Advisors in return for 5m to fund its North Sea work.