World markets fall amid fears of US rate rise

Leading US shares dipped below 10,000 today for the first time since December as world markets fell sharply on fears of an early rise in US interest rates.

In lunchtime trading, the Dow Jones industrial average was down more than 140 points, or 1.5%, at 9,968.8, as Wall Street suffered heavy selling for the third day running.

Earlier, about ?25bn was wiped from the value of the FTSE-100 index, which closed 103.2 points lower at 4,395.2, a 2.2% loss. It was the worst session for leading British shares in a month. The Paris and Frankfurt exchanges also closed more than 2% down.

The rot started in Asia, where the Tokyo stock market fell 4.8%, dipping below 11,000 points for the first time since February 27. Japan's main stock index has lost more than 10% of its value since hitting a 33-month closing high on April 26.

The trigger for the sharp retreat in world markets was last week's strong job gains in the US. On Friday, the US labour department reported that the economy had generated 288,000 jobs in April, many more than Wall Street had expected.

After strong jobs growth in March, the April data fed expectations that the US Federal Reserve could increase interest rates as soon as next month from their historic low of 1%. Those expectations undermined investor sentiment in the US on Friday, when the Dow Jones industrial average fell 1.2%.

Rising oil prices are also hitting confidence. With oil prices at $40 (?22.50) a barrel - their highest since the first Gulf war 13 years ago - economists are worried that more expensive oil will stoke inflation and add to pressure on central banks to raise borrowing costs.

David Buik, of Cantor Index, said: "Tokyo and Hong Kong set a miserable agenda, Europe jumped on the bandwagon and New York looks as though it will keep the downward pressure up."

Oil prices have been rising because of high demand from the US and China, but also because of worries about the security of supplies. The latest news from Iraq will hardly have calmed fears. The US army said Iraq had stopped oil exports from its southern terminals after a sabotage attack on a pipeline.

The pipeline - on the southern tip of the Faw Peninsula - was blown up on Saturday morning and was still burning, a US army spokesman told Reuters.

Two weeks ago US-led forces in southern Iraq foiled suicide boat attacks on oil tankers at the Basra terminal. The president of the South Oil Company, the company responsible for the industry in southern Iraq, said it had drastically reduced Iraq's oil exports. "The situation is not good," Mr Jabar al-Leaby said.