Unilever, Royal Dutch Petroleum and five Canadian firms have been given the boot by the Standard & Poor's index of 500 leading shares in the US.

It is absurd to just out of the blue announce something like this

Gert-Jan Geels Eureffect Asset Management

The move, which ostensibly set out to make the benchmark S&P 500 a purely US index, sent shares in the ousted firms lower.

Investors reacted angrily to the move.

"It's a pathetic move, it's political," raged one trader in Amsterdam where sharp falls in the share prices of both Unilever and Royal Dutch caused a 5% fall in the AEX index of leading shares.

"They are killing these two shares and the entire AEX index today," the trader continued.

"This smacks of the protectionist steel import tariffs [the US] imposed this year," said one fund manager.

In Canada, the telecoms equipment maker Nortel Networks' shares fell 13% in early trading. The other four Canadian firms - which were all in nickel, gold and aluminium - also fell sharply.

Tracker funds

Inclusion in the S&P 500 index is crucial for large firms which sell shares to US investors.

Out:

Unilever Royal Dutch Petroleum Nortel Networks Barrick Gold Placer Dome Inco Alcan

The index is used by 97% of US fund managers and more than a trillion dollars is invested in the companies included in the index by so-called tracker funds which follow the S&P 500.

The tracker funds' next move, following a rebalancing, would be to sell the shares they own in the ousted firms and to buy shares in the firms due to enter.

"This change makes the S&P 500 a better reflection of the large cap segment of the US equities market," said the head of S&P's index committee, David Blitzer.

"Index funds and exchange-traded funds can expect lower operating and transaction expenses and less tracking error."

Benefactors

The shares in the seven new entrants to the S&P 500 soared on the news of the reshuffle.

In:

United Parcel Service Electronic Art Ebay Goldman Sachs Prudential Financial Principal Financial Group

"It's a cheap trick to boost US exchanges," stormed the Dutch trader.

Others complained at the way the reshuffle was carried out.

"It is absurd to just out of the blue announce something like this," said Eureffect Asset Management's Gert-Jan Geels.

"I do understand the reasoning of creating a 100% US index, but we are sort of mad that there are only 10 days left before the actual rebalancing."

Brian Pears, head of equity trading at Victory Capital Management, disagreed.

"The most important thing is that it will not take effect until after 19 July and that's a pretty big lag time and should allow people to get their stocks in order," he said.

At least 7% of Royal Dutch's shares and 10% of Unilever's shares will come on the market as a consequence of S&P's decision, said Mr Geels.