London shares laid low by Asian flu

London’s leading shares were left feeling the effects of Asian flu today as they followed the lead of Far East markets into negative territory.

Last night Japan’s Nikkei index tumbled almost 300 points to a near 20-year low, while in Hong Kong the Hang Seng index lost 239 points.

Asian traders are nervous that the Severe Acute Respiratory Syndrome (SARS) superbug could derail fragile economic recovery in the region.

The dismal day of Far East trading overnight was compounded in London by continuing fears among investors that the war in Iraq will turn out to be much longer than expected.

The benchmark FTSE 100 Index lost 95.4 points – or more than 2% – to 3613.1 by mid-morning.

In London, traders said worries about what could happen to the world economy if the US-led forces in Iraq become embroiled in a protracted conflict continue to deter investors.

The same fears about the potential duration of the war also pushed oil prices higher this morning.

Brent crude – the international measure of oil prices – rose 50 cents to 26.85 dollars a barrel.

Renewed violence at the weekend continued to keep about 40% of Nigeria’s production off the market, exacerbating fears that war will interrupt Middle East oil exports.

Now the war is in full flow, analysts believe share prices are set for a steady decline until more positive news emerges from the Gulf.

Tom Hougaard, chief market strategist at City Index, said: “The slightest bit of good news from Iraq is bound to send stocks higher, and Saddam Hussein waving the white flag would start a historic rally, if only for the short term.”

Companies with most to lose from a drawn-out Iraqi conflict were among heaviest losers in early trading on the Footsie today, with cruise ship operator P&O Princess and airline British Airways suffering losses.

Both are expected to see their businesses hit by falling tourism and business travel as passengers stay at home while the war continues.