LONDON, Sept 12: Britain’s leading shares ended sharply lower on Thursday, dragged down by aerospace firm BAE Systems and a slide on Wall Street as fresh concern about the US economy added to fears of a war in Iraq.

A sharp fall in mobile phone giant Vodafone after a downgrade by one of its house brokers added further pressure, leaving the FTSE 100 share index down 125.8 points, or three per cent, at 4,084.9, just above its intraday low of 4,078.7.

The move took the leading index closer to the 3,996-point chart support level struck at the beginning of August. Fallers outnumbered gainers eight to one, while turnover totalled a solid 2.2 billion shares.

Observers said the lack of any positive economic or company earnings news, coupled with the possibility of imminent military action in Iraq, was likely to keep the benchmark index at these levels.

“I can’t see the market moving out of this range for a while yet. We’re quite some way into a bear market and companies are still coming out with profit warnings,” said Andrew Hobson, fund manager at Exeter Asset Management.

Weakness in oils accounted for just under one fifth of the main index’s loss, with BP down 3.4 per cent and Shell falling 4.2 per cent.

Dealers said the fall came as US President George W. Bush told the UN General Assembly the United States would work towards a new Iraq resolution, but stopped short of announcing imminent military action.

“We were defying gravity in recent sessions mainly buoyed by the oil price,” said Andrew Hobson, fund manager at Exeter Asset Management. “The main question is would the Saudis increase production if we did see another sharp rise, and history has shown that they usually do,” he added.

A surprise jump in US jobless claims, coupled with a lacklustre commentary on the economy from Federal Reserve Chairman Alan Greenspan added to the gloom created by Wednesday’s weak Beige Book reading on the world’s biggest economy.

By the close of London’s market, the Dow Jones industrial average was down 1.7 per cent and the tech-driven Nasdaq composite index was some two per cent lower.

Telecoms wiped a further 21 points off the FTSE 100 as sector heavyweight Vodafone fell 6.1 per cent to 92-1/2 pence after UBS Warburg, one of its house brokers, cut its rating on the company to “hold” from “strong buy”.

UBS also cut its share price target to 100 pence from 140p, citing concerns about increasing competition as mobile firms migrate to new generation handsets. Fellow mobile firm mmO2 fell 5.8 per cent in sympathy.

But shares in BAE Systems were the worst blue-chip performers, losing 14.4 per cent to 232 pence after the defence firm shocked the market with a 25.5 per cent fall in first-half pre-tax profits, blaming production delays and shipbuilding losses.

Earnings news from steelmaker Corus was similarly disappointing. Its shares fell 7.7 per cent to 50-3/4 pence after posting an operating loss towards the bottom of market forecasts, saying the pace and timing of economic recovery across major markets remained uncertain.—Reuters