LONDON'S benchmark FTSE 100 Index hit a seven-year low yesterday as fears of a looming conflict in Iraq deterred investors from the market.

The Footsie closed down 55.6 points at 3436, its fifth day of consecutive falls.

The losses mean the FTSE has lost more than 50 per cent of its peak of 6930.2 on December 31, 1999.

Insurance companies were at the heart of the decline with Royal & Sun Alliance hardest hit, losing six per cent of its value to 58.5p, a 3.5p loss for the day.

Dealers do not doubt a US-led war on Iraq will be launched but the timing and the extent of the divisions between Western governments remain an issue and are poised to exacerbate economic uncertainty and further affect oil prices.

Manufacturing is facing the latest in a long line of knocks because oil prices have climbed to new two-year highs as the US continues to press for a United Nations Security Council resolution to prepare the ground for an attack on Iraq.

Sterling was also weighed down by war worries and domestic political uncertainty.

At one stage the pound sank to a four-year low against the euro and was down against the dollar on concerns that the UK economy is slowing and the UK's role in the looming conflict in Iraq would drag it into political quagmire.

Analysts and stockbrokers had hoped that the markets were back on the up after the previous FTSE 100 closing low on January 27, when it ended at 3480.80.

A revival came as progress seemed to be made on weapons inspections soon after. Also a raft of corporate results in both the US and UK were no worse than anticipated, giving scope for a recovery in share prices.

But, Anthony Platts, of North-East broking house Wise Speke said: "Recent economic indicators in the US have been worse than anticipated, but provide evidence of value in the market.

"As yet, confidence is lacking to provide a sustained recovery in share prices.

"The current low has more to do with Iraq, I believe, and the clear split at the UN and the strong possibility of unilateral action by the US and its allies."

The FTSE's lack of stability has mirrored the ongoing political situation, leading another analyst to comment: "Markets hate uncertainty, and the only certainty at the moment is uncertainty."