LONDON: European stock markets closed in the red on Friday, with airlines hit hard by higher oil prices caused by spreading unrest in Iraq.
London's FTSE 100 index of top companies sank 0.95 percent to close at 6,777.85 points, weighed down also after Bank of England governor Mark Carney hinted at a rate hike sooner than expected.
Frankfurt's DAX 30 ended the week down 0.26 percent to 9,912.87 points, and the CAC 40 in Paris slipped 0.24 percent to 4,543.28 points.
Brent oil soared to a nine-month high at $114.69 a barrel, as investors fretted over spreading unrest in crude producer Iraq, traders said.
And gold hit a two-and-a-half week peak at $1,277.65 per ounce, as investors sought a safe-haven investment.
"Global markets have been hit particularly hard today, dropping heavily due to a combination of the concerns in Iraq and an unexpected announcement by Mark Carney last night which could see interest rates rise sooner than markets previously expected," said Sam Fox, an analyst at Spreadex trading and betting firm.
"The deteriorating situation in Iraq, coupled with reports Iran may be looking to intervene, has given European (stock market) traders the cue to sell," added analyst Alastair McCaig at IG trading group.
Costly oil hits firms:
The Iraqi government bolstered Baghdad's defences on Friday as jihadists pushed towards the capital and President Barack Obama said he is examining options short of sending ground troops to help Baghdad counter the Sunni extremist offensive.
Predominantly Shiite Muslim Iran has warned it will combat the "violence and terrorism" of Sunni extremists who have launched an anti-government offensive in neighbouring Iraq.
"This is an extremist, terrorist group that is acting savagely," Iran's President Hassan Rouhani warned on Thursday, without elaborating on what steps Tehran would take against fighters from the Islamic State of Iraq and the Levant (ISIL).
Traders noted that soaring oil prices would translate into rising costs for consumers and companies alike.
Alpari trader Craig Erlam said: "This will be disruptive to say the least, not just to the consumer who will see disposable income take yet another hit as they are forced to pay higher prices at the pump, but also to companies that rely on oil and gas."
The share prices of airlines fell particularly sharply on Friday on the back of rising oil prices.
German airline Lufthansa topped Frankfurt's fallers board, with its shares tumbling 3.44 percent to 16.27 euros.
International Airlines Group, parent of British Airways and Iberia, saw its share price slide 3.12 percent to 379 pence in London. And no-frills rival easyJet dived 2.93 percent to 1,457 pence.
Sterling rallies:
In foreign exchange activity, the British pound surged close to a five-year peak against the euro, after Carney warned the BoE could hike its main interest rate from a record-low 0.50 percent sooner than markets expect.
At 1600 GMT, the euro slid to 79.77 pence, from 80.08 pence late in New York on Thursday.
The British pound advanced to $1.6960 from $1.6923 on Thursday.
Against the dollar, the European single currency eased to $1.3529 from $1.3553 late in New York on Thursday.
On the London Bullion Market, gold later stood at $1,273.00 an ounce, up from $1,265.75 late on Thursday.
US markets however bucked the trend as a positive outlook from tech giant Intel and merger news offset worry about sectarian conflict in Iraq.
The Dow Jones Industrial Average tacked on 0.18 percent to 16,764.50 points, while the tech-rich Nasdaq Composite Index gained 0.22 percent to 4,307.11.
Asian equities ended mixed on Friday as oil prices leapt higher, but Hong Kong and Shanghai stocks reversed early losses after upbeat Chinese data, dealers said.
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