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Oil impacts on Europe's markets
LONDON, England (Reuters) -- Tumbling oil prices and doubt about the course of war in Iraq put the brakes on a four-day rally in European stocks on Tuesday, with fund managers saying they were braced for massive volatility going forward. Heady gains in German chemical firms BASF and Bayer were not enough to sustain an earlier advance, when optimism over Iraq prompted a burst of short-covering from players who had bet on further falls. Other standouts included Wella, which jumped 20 percent to 90.45 euros after U.S. consumer goods leader Procter & Gamble took control of the German hair care group for $5.7 billion. But Iraq dominated the talk in dealing rooms, as Iraqi President Saddam Hussein rejected an ultimatum to quit his country and vowed to fight a U.S.-led invasion that could start in little over a day. "The oil price has had its most severe drop in years. Meanwhile people are starting to wonder if this quick war scenario we are all anticipating is realistic, so we are seeing huge swings between asset classes," said Lex Werkheim, fund manager at Eureffect in Amsterdam. "This is not long-term investors at work, it's smart money going in and out of stocks, oil, bonds and gold in very short bursts and it's all event-driven. Will Saddam burn the oilfields? How long will the war last? We're in for much higher volatility," he added. By 1632 GMT the FTSE Eurotop 300 index was down 0.2 percent at 778.07, still some 14 percent above last Wednesday's close of 682.71 when it plumbed a six-year closing low. The FTSE 100 at close was up 0.7 percent at 3747, while the Frankfurt electronically-traded Xetra Dax was up 3.9 percent at 2584. The French CAC 40 was down 1.3 percent at 2794. The narrower DJ Euro Stoxx 50 was down 0.75 percent at 2,141.87, tracking a lackluster Wall Street where the Dow Jones industrial average was up 0.3 percent and the Nasdaq Composite down 0.15 percent. The Federal Reserve kept U.S. interest rates at 1.25 percent as expected. (Full Story) A near seven-percent drop in crude prices in anticipation that a brief war in the Middle East would cause minimum disruption to supplies, sent oil company shares skidding, with TotalFinaElf off 3.5 percent at 120 euros. The DJ Stoxx energy sector shed 1.8 percent overall. Investors also took some money out of insurers, a sector which had bounced strongly from last week's 10-year lows. On the upside, shares in Europe's chemical leader BASF jumped 10.4 percent to 34.43 euros after the firm beat expectations for fourth-quarter profits and predicted a strong start to 2003, fueling a powerful rally across the sector. Britain's ICI rose 11.2 percent to 159 pence while Belgium's Solvay gained 3.6 percent to 57 euros. German chemical and drug group Bayer rose 6.6 percent to 10.96 euros after the jury in a key case on the firm's recalled Baycol drug signaled it was split on whether the medication was defective, stoking hopes that Bayer will not be hit as hard as feared.
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