Investors move into safe havens

THE markets reacted as anticipated yesterday as uncertainty over the duration and, to a lesser extent, the outcome of the war on Iraq hit equities and the dollar, pushing gold, oil and the euro up.

The intensity of the Iraqi opposition to American and British forces as they plough on regardless to Baghdad has hit confidence and pushed investors money away from stocks and into safe havens like gold.

By the end of trading discerning investors began to pick up shares in companies they believe will be least effected by the war.

Some investors bought shares in companies such as L'Oreal SA, Unilever and Shell Transport & Trading Co whose earnings may be least affected by the war in Iraq.

The Dow Jones 50 Index gained 1.3% percent to 2232.90 edging up to the close in London. The 600 Index advanced 1% to 186.37, with energy stocks including Shell and Total Fina Elf SA accounting for a quarter of the advance.

The dollar fell against the euro, its biggest two-day decline in more than eight months, as concern mounts the war in Iraq won't end soon, hurting investment and consumer confidence in the world's largest economy.

Duration of the war "has become the single-driving factor in the market", said Marc Chandler, chief currency strategist at the securities unit of HSBC Holdings Plc, the world's third-largest bank by market value.

"A longer war is going to have a more negative impact on the global economy and drag on investment decisions."

The dollar declined about 1.7% in the past two days, its biggest drop since July 8-9. The US currency has lost almost 4% during the past three months.

Adrian Cunningham, who helps manage $22 billion at Abbey National Plc in Glasgow, said: "A long conflict is more costly and more damaging politically for coalition leaders and it's undermining the dollar."

Cunningham holds fewer dollars than recommended by most benchmarks.

Reports of burning oil fields in southern Iraq and of stoppages in Iraqi oil shipments fuelled fears of an oil shortage.

Crude oil rose yesterday for the second day running.

Brent crude oil for May settlement climbed 3.2% to $26.92 a barrel on London's International Petroleum Exchange.

A spokesman for Sydney-based Simon Games-Thomas, said: "The market had priced in the perfect war and had gone so far as building in a victory discount, which is now being eroded."

A 40% cut in Nigeri's oil exports, due to civil unrest, has also lifted prices.