Pound tumbles on Kelly crisis

STERLING dived to a three-month low against the dollar as the political crisis triggered by the death of Ministry of Defence scientist David Kelly rattled foreign exchange markets.

With the spotlight on Prime Minister Tony Blair during his tour of Asia, dealers in the region pushed the pound down to $1.5784 overnight - its lowest since April and more than a cent below Friday's close. It edged back up to $1.5960 as European markets opened.

Nick Parsons, chief currency analyst at Commerzbank, said markets were worried about what would happen if Blair resigned. 'Gordon Brown would be odds on favourite to replace Blair, but it is not immediately obvious who would fill Brown's shoes at the Treasury,' he said. 'That would create a lot of economic uncertainty,'

Kelly died last week - apparently by his own hand - after being caught in the clash between Downing Street and the BBC after the broadcaster reported allegations that Blair's Government exaggerated the case for war with Iraq.

The pound's tumble came as P&O signed an $800m (£503m) contract with Chinese and Danish partners to build a container terminal in the northern Chinese port of Qingdao. The signing was attended by Blair and his Chinese counterpart, Wen Jiabao, in Beijing.

The contract is for a 10-berth, 2.25m square metre container terminal, making it one of the 10 biggest terminals in the world. The port and P&O have roughly 30% shares in the deal, with China's Cosco and Denmark's AP Moller-Maersk Group taking a 20% stake each. Joining Blair in Beijing was Lloyd's chairman Lord Levene, who was lodging a submission seeking approval to establish an onshore reinsurance branch in China.