Oil, Iraq concerns slam European shares

Oil prices at record highs and escalating instability in the Middle East drove European equity markets to their worst close in nearly two months yesterday, with fuel-dependent airlines and volatile insurers hit most.

Tyre makers Michelin and Continental, and chemicals firm such as Akzo Nobel, whose output relies heavily on oil derivatives, were also pounded as fears of fuel supply shortages and sabotage attacks on the Middle East oil infrastructure lifted oil prices near $42 a barrel.

Concern that simmering crude prices may hurt economic and earnings growth spread across the board, sending Europe's largest maker of consumer electronics, Philips Electronics, German car giant DaimlerChrysler and Swiss engineering firm ABB sharply lower.

Lingering worries over the economic fallout of higher US interest rates and fears of a hard landing for China's booming economy also contributed to erode sentiment, thumping the FTSE Eurotop 300 index of pan European blue chips 1.4 per cent lower at around 960 points.

"In the current environment where recovery is still very fragile, any potential drag on growth, particularly earnings growth, will have a huge impact on market sentiment," said Nomura global strategist Anais Faraj in London.