Oil hike ignites Footsie firestorm

By Geoff Foster for MailOnline
Updated: 03:06 EDT, 14 July 2006

WORRIES about the inflationary implications of a record oil price brought the Footsie to its knees.

As escalating tensions in the Middle East lifted the black stuff to $76-plus a barrel, investors ran for cover.

London had opened lower following Wall Street's overnight drop of 121 points and continued to drift on lack of support. Any chances of a late rally vanished when the Street of Dreams shed a further 111 in early trading.

It left a friendless London market to finish 95.6 points off at 5765. The FTSE 250 lost 185.2 points to 9176.2, while the FTSE 350 dropped 50.9 to 2979.2.

The oil price gushed as geopolitical tensions exploded. Israeli fighters bombed Lebanon in retaliation over the capture and killing of soldiers by Hezbollah as the dispute over oil producer Iran's controversial nuclear programme took a turn for the worse.

Militants also attacked a pipeline in Nigeria. It all means that the poor old motorist will be paying more for their petrol before the summer ends.

The markets were also spooked by the disappointing start to the secondquarter reporting season in Europe and the US. German software group SAP collapsed 10% yesterday after missing analysts' forecasts for licence sales, operating earnings and total sales in the second quarter. That put the wind up British software group Sage, 10½p down at 214p.

Carnival, the world's biggest cruise operator, nosedived 78p to 2108p on fears of higher fuel costs - and Americans usually do not travel on boats or go on holiday outside the US when the gloves are coming off in the Middle East.

British Airways dipped 7¾p to 354¾p. The agm is next Tuesday and analysts will be hoping to hear further news about the transatlantic investigation into a alleged cartel over fuel surcharges involving BA and other unnamed airlines.

ABN Amro advised clients to sell international bank Standard Chartered (37p off at 1249p) because it looks increasingly likely it will soon buy LG Card, Korea's leading creditor card company, for about £4.7bn.

The deal will probably have to be partly financed by a £3bn fundraising which will put significant short-term pressure on the share price. The broker slashed its target to 1160p from 1310p.

Confirmation of its £1.6bn acquisition of US insurer AmerUS and hefty £900m fundraising to help finance the deal left Aviva 23p down at 690p and other insurers flat. Legal & General lost 4¼p to 123½p and Prudential 16½p to 559p.

Vague acquisition gossip and the purchase of 2m of its own shares at 342.3p helped supermarket Tesco resist the malaise and close 3p higher at 345p on meaty turnover of 51.7m.

Lloyds broker Jardine Lloyd Thompson plummeted to 326½p on hearing that bid talks with Heath Lambert had been terminated before closing 39½p cheaper at 350p. Numis said that JLT's large pension fund deficit makes an actual deal hard to envisage at a significant premium to the current share price.

Following a 347% jump in full-year pretax profits to a record £12.5m, Homebuy 'A' added 4p at 227½p.

Commoditrade, in which Andrew Regan's Corvus Capital holds 21.1%, firmed ¾p to 20¾p on a bullish trading update. Full-year pretax profits are expected to be significantly ahead of current broker estimates. Jefferies International's appointment as strategic adviser suggests that deals could be in the pipeline.

Orthopaedic devices manufacturer Corin fell 12½p to 240p after warning about a shortfall in sales in the second quarter.

Construction firm Abbey collapsed 67½p to 592½p following a warning that current-year profits are likely to be hit by further margin erosion.

Healthy half-year numbers helped stockbroker Jarvis Securities rise 5p to 82½p. Broker Daniel Stewart upgraded its pretax profit forecast for the full year to £1.1m from £900,000 and next year's to £1.3m from £1.1m.

• DEALERS believe Akers Biosciences look oversold at 58p, but the maker of diagnostic tests appears to be in the best of health and its flagship product - a rapid test for Heparin allergy - is now being used in 500 American hospitals. An anticipated trading statement should clear all doubts and help the shares leave the sick bay.