America's service sector had a better-than-expected June but markets fell this morning as investors worried about the falling price of oil.

The Dow Jones Industrial Average reversed losses, rising 44.13 points, or 0.5 per cent, to 8324.87, after being down as much as 74.75 points.

The Institute of Supply Management's services index, which measures the performance of industries such as finance and transport, was at 47 points in June, up from 44 in May.

This was the index's highest level since last September, beating economists' expectations of a 45.5 reading. But a score of less than 50 means that the sector, which provides about 70 per cent of America's economic activity, is continuing to shrink

Benchmark crude for August delivery was down $2.93 to $63.80 per barrel on the New York Mercantile Exchange, having previously fallen as low as $63.40, as markets digested last week's lacklustre US employment figures.

Investors are worried that America's economy is not recovering strongly enough to increase demand for oil. Some analysts expect the price per barrel to soon hit $60.

The US Labour Department said last week that the unemployment rate had hit 9.5 per cent, a 26-year record.

Doubts over a global economic recovery also hit the FTSE to drag it below 4,200 for the first time since late April.

Oil prices plunged nearly $3 to below $64 a barrel. Benchmark crude for August delivery fell $2.97 to $63.76 a barrel in trading on the New York Mercantile Exchange.

The fall hit commodity stocks and sending the London index down 41.37 points, or 1 per cent, at 4,194.91.

It emerged this morning that Gordon Brown is to say later today that the worst of the recession may be yet to come. Dominique Strauss-Khan, head of the IMF, further dampened any hopes of a revival when he said banks had more work to do in clearing up their balance sheets.

Miners and energy stocks tracked the oil price drop with Lonmin - the heaviest top-flight faller - retreating 99p or 8.54 per cent to 1060p. Xstrata was down 48.8p or 7.45 per cent to 606p and Kazakhmys, down 38.5p or 6.11 per cent at 591.50p.

The leader's board featured a clutch of telecoms companies including Vodafone, up 1.95p to 115.65p. BT, which has offered employees the chance of long-term holidays in return for pay cuts, added 1.3p to 103.4p and Cable and Wireless, up 0.5p at 133.2p.

In the small-caps, JJB Sports continued to spiral down losing around 25 per cent or 7.75p to 23p. The sporting goods retailer said late on Friday that it is considering an equity fundraising as one of a number of ways to provide extra capital while Sir David Jones, the group's executive chairman, is alleged to have borrowed £1.5 million from billionaire Mike Ashley, the boss of rival sportswear chain, Sports Direct. The alleged loan is said to have raised questions over a possible conflict of interest.

The London drop followed a sharp sell-off in Asia, where markets fell for a fourth consecutive session amid renewed doubts about a swift recovery in the global economy and the selling of exporters because of a stronger yen.

In Europe, Germany's DAX declined 1.19 percent to 4,651.82 points while the CAC-40 in France shed 1.19 per cent to 3,082.16.

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