Byline: MICKEY CLARK
THE soaring cost of raw materials is beginning to have a depressing effect on stock markets around the world.
With the oil price pressing toward $70 a barrel, gold climbing above $600 an ounce and silver trading at its highest for 23 years, investors are starting to fret about the threat of growing inflation and the impact on company profits.
Share prices fell sharply on Wall Street overnight amid fears the US Federal Reserve may be forced to continue raising rates to squeeze out inflationary pressures. The selling spilled over into the Far East today, and shares had only one way to go in London - down.
Even so, prices managed to trade above their worst levels supported by a rally on Wall Street this afternoon. The FTSE 100, having briefly dipped back below 6000, reduced the deficit to 5.7 at 6010.8 while the Dow in New York rose 43.40 to 11,133.0.
Vodafone also accounted for some of the rally with the shares rebounding 2p to 1251/2p on reports that Verizon Communications is planning a $50 billion ([pounds sterling]29 billion) buyout of its joint venture with the mobile phones giant.
Vodafone has come under pressure from institutional shareholders to sell the 45% stake but only last month its chief executive Arun Sarin ruled out such a move.
Oil is also being pushed higher by fears that the US will launch armed strikes against Iran in the dispute over its nuclear programme. Despite the higher oil prices, shares of the big blue-chip explorers traded mixed. BP was 2p easier at 693p as broker Dresdner Kleinwort Wasserstein rated the stock a buy along with BG, 6p better at 7431/2p, and Royal Dutch Shell, 5p lighter at 1980p. DKW believes oil shares look cheap against the rest of the market.
UBS has repeated its buy rating on BP but sees Shell as neutral.
Nuclear power generator British Energy rose 141/2p to 6951/2p. Dealers say the shares are catching up with those of coalfuelled generator Drax, 21/2p better at 7871/2p, which have soared since it was floated at 500p at the end of last year.
Mining shares came in for profittaking, having made the most this week of record copper and zinc prices. Kazakhmys fell 29p to 1176p, BHP Billiton 27p to 11281/2p and Antofagasta 58p …