Raw-Materials Rise Sparks Global Drag

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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 when trading resumed in London - down. Even so, the FTSE 100 index managed to trade above its worst levels of the day, with a fall of 1.8 at 6014.7, having briefly dipped back below 6000.

Vodafone accounted for much of the rally with its price rebounding 5p to 1281/4p 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 failed to benefit. BP was 21/2p easier at 6921/2p as broker Dresdner Kleinwort Wasserstein rated the stock a buy along with BG, 1/2p better at 738p, and Royal Dutch Shell, 7p lighter at 1978p.

DKW believes oil shares look cheap against the rest of the market. UBS has also repeated its buy rating on BP but sees Shell as neutral.

Nuclear power generator British Energy stood out with a rise of 11p to 692p.

Dealers say the shares are catching up with those of coal-fuelled generator Drax, unmoved on 785p, which have soared since it was floated at 500p at the end of last year.

Mining shares came in for profit-taking, having made the most this week of record copper and zinc prices. Kazakhmys fell 321/2p to 11721/2p, BHP Billiton 33p to 11221/2p and Antofagasta 69p to 2295p.

Marks & Spencer continued to draw strength from yesterday's strong fourth-quarter trading update, the shares adding another 1p to 587p as brokers began upgrading their forecasts. …