Weak dollar causes market jitters

European markets resumed their decline today as investors again fretted about the weakness of the US dollar.

Around 50% of earnings by blue-chip companies such as miners and pharmaceutical companies are dollar based, causing the FTSE 100 Index to fall 39.4 points lower to 6082.7 at mid-morning.

The recent drag on the dollar has come amid concerns about the state of the US economy and the possibility that interest rates may have to fall. Sterling remained at around $1.94 today.

BAE Systems added to the pressure after a newspaper report said the government of Saudi Arabia had warned the company it could pull out of a contract to buy 72 Eurofighters. Shares were 16p lower at 387.5p, a fall of 4%.

A flurry of merger and acquisition activity at least sparked excitement among mid-cap stocks.

Shares in housebuilder Wilson Bowden and travel company First Choice Holidays soared in the FTSE 250 Index after they both said they were in talks over possible deals.

Wilson Bowden was up more than 13% or 239p to 2070p after it said it had received takeover approaches from a number of parties.

The news sent its value soaring to nearly £2bn (€3bn) as investors gambled on an offer being made, while the rest of the sector was also in positive territory.

Blue-chip rival Persimmon gained 1% or 17p to 1398p, Redrow was up 2% or 15.5p to 639.5p, and Bellway was ahead nearly 2% or 26p to 1385p.

First Choice Holidays gained 14% or 32.75p to 260.25p after it said it was in discussions over the sale of its package holidays business, which includes brands such as Falcon and Sunstart.

MyTravel, which confirmed its interest as a possible buyer, lifted 16.25p to 216p, even though it said it may issue shares to pay for the business.