Global stocks fall amid Libya fears

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The unrest in Libya is sending shockwaves through world markets

Violent clashes in Libya have sent world stocks tumbling deeper into the red as the price of oil remained near two-and-a-half-year highs.

Sharp falls across Asian markets sparked a sell-off in London and Europe, while Brent crude hit more than 108 US dollars (£67.50) a barrel on concerns that Libya’s crude exports of more than one million barrels a day could be affected as foreign oil companies evacuate staff from the country.

In London, the FTSE 100 Index sank more than 1% and France’s Cac 40 dropped nearly 2% as investors headed for the exit amid the escalating crisis in Libya.

Better-than-expected UK borrowing figures offered limited support to UK blue chips, despite news of a £3.7 billion surplus for Britain’s public finances in January thanks to a bumper tax haul.

Michael Hewson, market analyst at CMC Markets, said traders feared the Libya and wider Middle East unrest could send world markets into a prolonged tailspin. He said: “Given the fact that we have seen massive gains in stock markets over the last few months investors have been nervous about a possible correction for some time now.

“The tensions in the Middle East with Libya imploding and concerns that the unrest could spread to Saudi Arabia could provide just such a catalyst for a correction given that we are approaching some key support levels on the major indices.”

Surging oil prices also led to concerns that crude could break past its 2008 record of around 147 US dollars (£92) as the political unrest strikes right in the heart of some of the world’s biggest producing regions. Libya is the first leading oil-exporting country to be hit by the political turmoil, but traders were also eyeing protests in Iran, the second largest producer within Opec.

Airlines were among stocks hit hardest in London, under pressure from worries over the impact of rocketing fuel costs. Europe receives more than 85% of Libya’s crude exports – mainly for jet fuel – with 8.5% going to the UK.

There were also wider concerns on the rising oil prices, with experts suggesting a jump in energy costs could hurt consumer spending and knock the fragile global economic recovery.

The International Energy Agency’s chief economist Faith Birol reportedly warned oil prices posed a serious risk to recovery by weakening trade balances and putting pressure on central banks to raise interest rates and rein in inflation.

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