BP Plc hit a snag in its latest effort to curb the Gulf of Mexico oil spill as the British energy giant's shares stabilized on Wednesday and parts of the huge oil slick reached neighboring states.

The company's latest plan is to siphon off some of the oil by first using robot submarines to cut away what is left of the ruined offshore well's leaking riser pipe, then lower a containment dome over the remaining wellhead assembly. BP will then funnel crude to the surface.

But the diamond saw being used to cut through the pipe became stuck, and BP is employing robots on the seabed to free it, a difficult task one mile deep.

They're working to move the riser pipe to set it free. .... The goal is later on today to finish that cut, and to be able to put a containment device over the top of the wellhead and stop containing the oil, Coast Guard Admiral Thad Allen, chief of the U.S. disaster response, told reporters.

BP's latest plan to curb the oil flow after the top kill strategy failed could represent the last best hope before August, when the company hopes to have two relief wells drilled and functioning.

This latest attempted fix may actually increases the flow of oil at least temporarily before the leak can be contained.

President Barack Obama, facing one of the biggest challenges to his presidency, is under relentless pressure to stop the leak.

BP, now facing an Obama administration criminal investigation, has lost two-thirds of its market value since the April 20 rig explosion that killed 11 and triggered the mile-deep gusher.

BP shares were down less than 2 percent in European trading on Wednesday, after plunging 13.1 percent the previous session. The company has lost more than a third of its market value, or about $67 billion (46 billion pounds), since the crisis began.

The cost of insuring the debt of BP, rig operator Transocean and Anadarko Petroleum Corp hit fresh highs on Wednesday as concerns grew about the companies' exposure to the spill.

Tar balls and other oil debris from the giant, fragmented slick reached Alabama's Dauphin Island, parts of Mississippi and were less than 10 miles from Florida's northwest Panhandle coast. The region's vital seafood and tourism industries were at risk.

A section of Dauphin Island beach well known for its white sand was covered with patches of black and an orange sheen. Hundreds of workers and around 150 boats set out to lay more protective boom around the island, though they were delayed by a squall that passed over the tourist haven off Alabama's Gulf coast.

It is so depressing. It is really happening. It really won't go away. And the American people really don't know what has hit them, said Dauphin island homeowner Caroline Graves.

LAST BEST HOPE

The containment dome, designed with a gasket on the bottom to fit snugly over the leak and seal out seawater, is intended to capture a large portion of the billowing oil and channel it through a hose to a ship on the surface.

BP must make two cuts on the riser pipe, with the second key to ensuring that BP gets a clean seal between the pipe and the containment dome.

The cleaner the cut, the tighter the seal we can make on it, Allen said, enabling BP to capture more oil and funnel it to the surface.

The cap also is equipped with valves to allow operators to inject methanol or warm water that would prevent the buildup of slushy gas hydrates that thwarted an earlier siphoning effort.

But sawing off the end of the damaged riser pipe through which oil has been pouring nonstop could increase the flow of crude by 20 percent until the containment dome is lowered into place.

Allen said it could take 72 hours to get the containment cap operational.

As much as 19,000 barrels of oil (800,000 gallons or 3 million liters) a day has been pouring into the Gulf off the coast of Louisiana since the April 20 explosion that sank the Deepwater Horizon offshore drilling rig and killed 11 crewmen.

The accident ranks as the worst oil spill in U.S. history, surpassing the 1989 Exxon Valdez tanker disaster in Alaska.

The spreading slick coincided with the official start of the Atlantic hurricane season and predictions that this summer could be the stormiest since 2005, when Katrina and Rita wreaked havoc on the Gulf Coast.

Commercial fishing, shrimping and oyster harvests have been shut down for weeks along much of the U.S. Gulf Coast, home to a $6.5 billion seafood industry.

While cleanup crews have attacked the oil slick on the surface with skimmers, dispersants and controlled burns, shoreline-protection teams have scurried to block the spread of oil with containment booms, sandbags and other barriers.

Scientists and Gulf residents are most concerned about the encroachment of oil into bayous and marshes teeming with shrimp, oysters, crabs, fish, birds and other wildlife.

BP will seek to patch up its battered share price by reassuring investors the cost of cleaning up the spill is manageable and will not affect dividends, British media reported on Wednesday.

If our current efforts were to fail and we have to wait for the relief wells to be drilled and had six months of clean-up, we estimate the cost at $3 billion, BP Chief Executive Tony Hayward told the Daily Mail.

(Additional reporting by Kristen Hays and Chris Baltimore in Houston, Jeremy Pelofsky in Washington, Verna Gates on Dauphin Island, and Joanne Frearson in London; writing by Steve Holland; editing by Philip Barbara)

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