Investors would be hard-pressed to find a more classic case of the tail wagging the dog than to look at BT and the telecom giant’s pension fund. The market has been scared off BT by some pretty frightening barks in recent months, with several profit warnings centring on the company’s Global Services unit, but its greying pension tail may prove to be even more of a concern in the coming months.

BT’s shares fell 11 per cent yesterday as investors grew wary that its pension fund, which has assets of almost £30 billion, worth more than three times the value of the company itself, may need topping up more than was previously thought.

Fears were sparked after Morgan Stanley said that the group may need to cut its final dividend to support annual top-ups of up to £750 million if trustees take a conservative view in the triennial pension review in May.

The American investment bank estimates that BT’s pension fund deficit stood at about £6.6 billion at December 2008 and that falls in asset values mean that the deficit may have risen by a further £2 billion since then.

Morgan Stanley downgraded its rating on BT stock to “underweight”, from “equal weight”, and cut its price target to 110p, from 160p. BT’s shares, which have almost halved in value since the start of the year, fell 9.3p to 74.1p.

The FTSE 100 index closed down by 0.87 points at 3,530.73 as another day of heavy losses for insurers was offset by gains for miners. The index has lost almost 8 per cent this week, with insurers hit hard as fears over the sector’s solvency weighed heavily on investors’ minds, as they fret how the falling value of equities and rising bond defaults will hit capital positions.

Aviva, which lost a third of its value on Thursday after reporting a £7.7 billion annual loss, fell another 14 per cent, dropping 26.6p to 163.3p. Legal & Generalfell 1.8p to 24.8p and Prudential was down 11¾p to 209¼p Wolseley, the plumbing group, was the index’s biggest faller, down 25p at 140.4p, after it became the latest blue chip to reveal details of a discounted rights issue. It aims to raise £1 billion.

Losses were mostly offset by heavy-weight mining stocks, which made ground amid firmer metal prices and hopes that demand from China may pick up again. Eurasian Natural Resources rose 24¼p to 376¼p, Rio Tintogained 92p to close at £18.25 and BHP Billiton was up 49p at £11.56.

Lloyds Banking Group outdid the rest of the banking sector, with a rise of 1.7p to 42p, amid hopes that it was close to agreeing a deal with the Government to insure its toxic assets.

WPP, the advertising group, was a big gainer, rising 15¾p to 390p, after reassuring annual results. The company also increased its annual dividend.

JD Wetherspoon fell 18p to 350p before interim results next week, with investors concerned about refinacing. The pubs group has a £87 million US private placement due to be repaid this year and its £414 million bank facility needs to be refinanced before the end of the year, at what will probably be a more painful cost.

New York: Shares rose as surging oil prices lifted energy stocks, offseting a sell-off in technology shares inspired by a view that a slowing economy would sap consumer spending on gadgets. The Dow Jones industrial average closed up 32.50 at 6,626.94.

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