Soaring oil prices, which reached 10-year highs, and mounting concern about the euro's weakness drove stocks in the US, Europe and Asia into lower territory yesterday.
The oil market focused on renewed tension in the Middle East, where Iraqi president Saddam Hussein warned fellow members of the OPEC cartel against pressure from "superpowers" to cut the price of fuel. President Saddam's remarks came after Baghdad renewed allegations that its Gulf neighbour, Kuwait, which it invaded in 1990, was stealing Iraqi oil.
The possibility that Iraq would cease pumping fuel in protest was partly responsible for surging oil prices, and the movement was amplified by weak trading, analysts said.
Fading prospects that the US would intervene to cut prices was another factor. But analysts added that any downward effect on prices would be short-lived even if the US agreed to pump its reserves.
Traders are concerned about low levels of heating oil inventories and took little heed of remarks on Sunday by OPEC's secretary general, who said the body would raise fuel output by 500,000 barrels a day if prices remained above the top end of its target range of $22 to $28 a barrel (€25.80-€32.84).
"If during the month of October, prices remain at that high level, higher than what we want, then we would be in a position to put in an extra 500,000 barrels," Mr Rilwanu Lukman said.
In trading yesterday, London Brent crude futures peaked at $34.90 a barrel while US light crude futures hit $37.00, levels unseen since the 1990-1991 Gulf crisis.
Such movements feed into higher energy costs for other users, cutting corporate profits, and this drove stocks downwards. The poor sentiment was compounded as the euro fell to new lows against the dollar.
Shares on the Nasdaq exchange traded 2.26 per cent lower in mid-day trading, while the Dow Jones Industrial Average was 0.79 per cent weaker in a broad decline that included heavyweight financial firms such as JP Morgan. At the close, the Nasdaq was down 108.71 at 3,726.52, while the Dow Jones was down 118.48 at 10,808.52.
The technology-heavy Nasdaq rose a little earlier in the day on what some analysts said were positive comments by the chairman of the Federal Reserve, Mr Alan Greenspan.
While Mr Greenspan's remarks did not address the outlook for the economy or interest rates, he told the American Bankers Association that the acceleration in the growth of technology has greatly affected the US economy. This pushed tech stocks higher, but the gains were short-lived.
The reverse prompted losses in London, where the FTSE 100 dipped 0.11 per cent to a five-week low despite gains earlier on. Stocks also lost ground in Frankfurt, Paris, Zurich, Brussels, Stockholm, Madrid, Lisbon and Amsterdam. The Dublin exchange was unaffected by the trend and rose 0.34 per cent on the day.
Losses in European trading followed falls in Asia, where shares on the influential Hang Seng index in Hong Kong plunged 4.2 per cent to below its psychological support level of 16,000. Dealers said a sharp decline on Wall Street before the weekend helped trigger the sell-off in Asia, which was due to weaker overseas markets and worries about oil prices.
