FTSE falls in line with oil prices

In the UK the FTSE 100 has fallen 55.1 points, or 1%, to 5372.7 at its opening this morning, tracking losses on Wall Street and led lower by BP and Partygaming.com.

Oil giant BP fell 9 points, or 1.9%, after it warned on Tuesday it was unlikely to meet its 2005 production target because of Hurricanes Katrina and Rita.

It was also affected by the price of crude oil falling towards $62 a barrel after US government data showed oil demand had dropped below levels a year ago. Signs are emerging that high energy costs are curtailing consumption.

Mining stocks also fell, with BHP Billiton and Antofagasta down more than 2%. Investors have been taking profits from the sector after its gains on the back of soaring commodity prices.

Online gambling firm, PartyGaming also led FTSE fallers, down 2.3%. The stock has been volatile since shedding a third of its value last month when the firm said growth in the sector could be moderating.

With little scheduled company news to work with, the market will focus on an interest rate decision from the Bank of England later today. The Bank is expected to keep rates on hold at 4.5%, but many economists expect a quarter-point cut as early as November to bolster economic growth.

In Japan, the Nikkei 225 Stock Average sank 330.38 points, or 2.4%, to 13,359.51 at its close a short while ago, its biggest drop since April. Exporters such as Hitachi and Honda Motor led the fall after a service industry report highlighted slowing demand in the US economy.

Energy-related shares including Inpex also tumbled after crude oil prices fell to a two-month low.

Meanwhile Fuji Heavy Industries experienced a rise after General Motors said Toyota Motor agreed to buy part of its stake in the car manufacturer. Fuji Heavy, the maker of Subaru-brand vehicles, surged by the daily exchange-imposed limit of 100 yen to 640 yen, up 19% from yesterday.

General Motors, raising cash after a first-half loss, agreed to sell its entire stake in Fuji Heavy with a market value of $746m to Toyota and on the market.

Toyota, the world's second-largest carmaker after GM, will pay about $315m in cash for 68 million shares, or 8.7%, of Fuji Heavy. GM will sell 11.4% of Fuji Heavy on the market.

Despite this news Toyota shares declined along with other exporters as its stock fell 150 yen, or 2.9%, to 5,100.

Hitachi, Japan's largest maker of electronics, slid 37 yen, or 4.9%, to 720. Honda, which is the most dependent on US sales among Japan's top three car manufacturers, dropped 270 yen, or 4.1%, to 6,380. Canon, the world's largest maker of copiers, lost 290 yen, or 4.6%, to 6,030.

Among exporters, Nintendo, fell 390 yen, or 2.8%, to 13,340 after sales data suggested the company's latest player, Nintendo DS, is struggling in the US market.

Sumitomo Metal Industries, the world's largest maker of high-grade steel pipes used in oil production, advanced 2 yen, or 0.5%, to 386 and was the most active stock by value, with 126 billion yen in shares changing hands on the first section.

Inpex, Japan's largest oil explorer, slid 40,000 yen, or 4.7%, to 808,000. Teikoku Oil, which plans to spend 5.5 billion yen on oil exploration in Libya over five years, slumped 64 yen, or 5.6%, to 1,080 and Showa Shell Sekiyu, the Japanese refining unit of Royal Dutch Shell, tumbled 99 yen, or 6.5%, to 1,425.

In the US, the Dow Jones Industrial Average fell 123.75 points, or 1.19%, to 10,317.36 yesterday after a surprisingly weak reading on the service sector of the economy raised concerns about the continuing impact of higher energy prices.

Investors are also jittery about earnings season, which officially starts on Monday. Some companies such as Clorox have already begun to warn that their earnings will not meet expectations.

Home builder Hovnanian Enterprises fell $1.09 to $48.19 despite its report that new contracts rose 61.5% in September. Investors are concerned that the steep run-up in housing prices is starting to stall as interest rates climb. Other home builders also dropped. D.R. Horton fell $0.84 to $34.36. KB Home fell $2.95 to $67.46, and Toll Brothers fell $0.92 to $40.48.

Yesterday's reading by the Institute for Supply Management, indicated supply managers were concerned about higher energy costs, which worried investors already nervous about the effects that rising oil and gas prices will have going forward.

The market was also still mulling Tuesday's comments from Dallas Federal Reserve Bank President Robert Fisher, who said inflation was nearing the high end of the Fed's comfort zone, a clear signal that the Fed's short-term interest rate increases would continue.