Markets boosted by oil price falls

Oil prices have risen as Opec cuts supply

A cooling in oil prices helped to boost flagging stock markets, with London's FTSE 100 Index ahead more than 1%.

Light, sweet crude on the New York Mercantile Exchange - the benchmark oil price - was trading at around 134 US dollars a barrel, well down from the 147 dollar record recorded last week.

That spike shook investors around the world, which, combined with further economic gloom such as soaring inflation, sparked several days of hefty losses for London's blue-chip FTSE 100 Index.

But oil prices have dropped over the past two days amid expectations of slower demand in the US. The Energy Information Administration said on Wednesday that US crude supplies rose by three million barrels last week, compared with the three million barrel reduction analysts had expected.

A rally for banking stocks, following better than expected results in New York, also contributed as London's Footsie rose by almost 100 points. European exchanges in Frankfurt and Paris enjoyed similar rises but analysts said figures from Merrill Lynch later today would be crucial in determining further progress.

Oil still costs nearly 40% more than at the start of the year, with the rise driven by fears over global supplies.

There was a glimmer of hope for the UK's hard-pressed motorists on Wednesday as figures showed the rate of increase in petrol prices had slowed.

Average petrol and diesel prices rose by a more modest 1.5p a litre between mid-June and mid-July, the AA revealed, compared with 5p to 7p hikes endured by drivers during the period mid-May to mid-June.

The Chancellor also announced he was postponing a 2p rise in fuel duty scheduled for this October.

Drivers are still paying nearly a quarter more for their petrol compared to a year ago, and around 36% more for diesel.