Iraq is struggling to attain pre-war production

The oil producers' cartel said on Wednesday it would cut output by 900,000 barrels a day from 1 November in order to pre-empt a possible fall in prices.

Most major Asian stock markets - with the exception of Hong Kong - dropped more than 2%, but had regained some ground by the end of trading.

In Europe, all major markets were about 1% lower, except Frankfurt where share prices were marginally higher.

Asian losses followed steep declines on US markets on Wednesday, with the Nasdaq hi-tech index closing down 3%, the Dow Jones industrial average off 1.5% and the broader S&P index down nearly 2%.

Airlines bleed

Airline stocks were particularly hard hit, as fuel costs can be as much as 20% of airline operating costs.

Shares in Singapore Airlines, Japan Airlines and Korean Air all fell heavily.

Asian markets, Thursday close Japan's Nikkei - 1.83% Korea's Kospi - 1.5% Sydney's - 1.1%

Crude oil prices soared as startled traders reacted to Opec's announcement on Wednesday: the price of the market's benchmark, Brent crude oil, shot up $1.13 to $26.65 a barrel.

Oil prices continued to push higher in Asian trading on Thursday, though at a steadier pace.

Crude oil for delivery in November was up five cents to $28.29.

Key facts and figures on world oil reserves, consumption and production At-a-glance

Opec - made up of 11 countries which together pump a third of the world's oil supply - aims to keep the price of oil at about $25 a barrel by limiting the amount of oil made available to buyers.

"We believe that we have about 2.5 million barrels a day of oversupply in the first quarter of 2004 and it's better to start before to prevent a bad situation," said Iranian Oil Minister Bijan Zanganeh.

Ahead of the news of an output cut, a row had broken out over the role of Iraq in the cartel.

Ministers had previously differed over whether Iraq's interim oil minister, appointed under the US-led administration of Iraq, should take a seat at the negotiating table.

But the cartel's president confirmed that Iraq would be granted full membership status at the meeting.