Qataris Ditch London Stock Exchange for Us Rival

The gas-rich Gulf state of Qatar has ditched its long-standing strategic ties with the London Stock Exchange to team up with rival exchange group NYSE Euronext in a surprise move which appears to leave the LSE increasingly isolated on a rapidly consolidating world stage.

Strategic ties between the London exchange and Qatar had been fostered by LSE chairman Chris Gibson-Smith and his chief executive Dame Clara Furse over the past 12 months. Gibson-Smith became a non-executive director of Qatar Financial Center Authority and Furse has referred to "significant opportunities to build further this relationship".

Furse flew to Qatar in the final stages of a competitive tender process to oversee development of local exchange Doha Securities Management (DSM). But she was unable to dissuade the Qataris from forging an alliance with LSE's US rival.

Instead NYSE has secured a far-reaching technology and management partnership agreement for DSM and it will take a 25% stake in the stock market for $250m (£125m).

The relationship between LSE and Qatar had appeared to be cemented last September when sovereign wealth fund the Qatar Investment Authority raided the market in LSE shares acquiring a 20% stake at more than £15.80 in a move widely interpreted as a "white knight" investment.

The market raid came in quick response to a complex deal involving rival Middle East sovereign fund-backed Borse Dubai taking ownership of a 28% stake in LSE previously held by US exchange group Nasdaq. That deal appeared to cement an international strategic and cross-shareholding alliance between Nasdaq, Sweden's OMX and Borse Dubai. It was in part a response to a separate axis that emerged form New York Stock Exchange's merger last April with Euronext.

Meanwhile, the LSE will continue to advance its international ambitions, building on its merger last year with Borsa Italiana and a modest joint venture in Japan plus some operations in South Africa.

Shares in the LSE closed down 34.5p at 834.5p last night. The decline wiped more than £14m off the value of QIA's stake in LSE, that has almost halved since last September. The QIA is sitting on a paper loss from its LSE investment of about £310m.

Last night sources close to the state of Qatar said: "Today's announcement has absolutely no bearing on our relationship with the LSE. We are supportive shareholders and we will continue to hold our stake for the long term.

"We would certainly not rule out the possibility of joint initiatives with the LSE going forward should an opportunity arise." But the LSE, which lost out to NYSE Euronext in a competitive tender, is privately not believed to hold out hope for further strategic alliances with Qatar.

NYSE Euronext is said to have impressed in part because of its strong track record operating internationally and because of its considerable derivatives operations. The US group's deal will see it appoint a management team for DSM as well as provide its technology to the exchange. Some 43 companies trade on the DSM, with a combined market value of $136bn. NYSE Euronext hopes to have derivatives trading up and running in Doha by next year and the DSM exchange plans to float domestically within three years.