Shares get the jitters as the 1987 crash casts its shadow

With the 20th anniversary of the Black Monday stock market crash of 19 October 1987 just two days away, traders in London said there is increasing fear across the world that the credit crunch could have far greater long-term effects than it has had so far.

In the short-term, the price of crude oil rose to new highs, with Brent crude for November delivery up $1.16 at $84.16. Dealers said only rising oil-company shares have prevented London's FTSE 100 index falling more sharply in the last couple of days.

In early trading today the index of leading UK shares was down 12.4 at 6601.9.

Overnight, Wall Street was hit by worse than expected results from consumer goods giant Johnson & Johnson and much higher bad debt provisions from Wells Fargo. The Dow Jones closed down more than 70 points at 13,912.94. Strong results announced after hours by Intel, IBM and Yahoo could improve matters today. US oil futures hit a new high of $88.20 a barrel overnight before settling back to $87.61. The price has now risen for six days running and is up 44% since the start of the year. Analysts said the rise has yet to feed through into the wider economy but it could start to damage consumption.

Drew Matus, senior economist at Lehman Brothers, said: "The real question is what is the next shock level for US consumers. Whether they can absorb $4-a-gallon gasoline, I don't know."

In the UK, petrol prices pushed through the £1 a litre barrier at the start of this month as new duty rises came into force, but analysts expect them to go higher if the oil price rally is sustained.

Far Eastern markets followed Wall Street's lead, with the main Japanese and Chinese indices down well over 1%. Investors said there was a flight to safety with bonds and the gold price both rising strongly.

Indian markets were rattled by new restrictions placed on speculation by foreign investors using derivatives. After an hour's suspension triggered by a near-10% fall the Bombay Exchange closed almost 5% lower. Sentiment was not helped by news that the United States saw a record sell-off of bonds, loan notes and shares by foreign investors in August as they took fright at the subprime mortgage crisis.

The exodus of foreign money could create long-term difficulties for the American economy, which needs to borrow $2.1 billion a day simply to finance its enormous trade gap with the rest of the world. But the long-term decline in the dollar coupled with the credit squeeze is putting off overseas investors.

During August net sales of financial assets by non-US investors were $69.3 billion compared with a net inflow of investment of $19.5 billion in July. The previous record sell-off was $21.2 billion back in March 1990.