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Investment analysis

Continued uncertainty about the prospects for the global economy weighed on world stockmarkets last week following a number of pessimistic corporate forecasts, mixed economic data and heightened tension in Iraq. Although Japanese equities bucked the downward trend, the FTSE World index index still lost 1.9 per cent.

Three consecutive days of falls saw US equities suffer their first week of losses this year. Microsoft, IBM, Intel and General Electric sent out weak signals for the year ahead. Although all met or beat 2002 Q4 earnings expectations, Intel said it would cut back on capital expenditure in 2003 and both IBM and Microsoft warned of lower revenue growth. Investors were also discouraged as the University of Michigan&#39s reported consumer sentiment fell in December and there was also a fall in industrial production, which surprised most economists who had been expecting a rise, and the trade deficit rose to a record level of $40bn. The Fed&#39s latest survey of economic conditions across the US described the economy as soft and subdued. Amid all this, the Dow, S&P 500 and Nasdaq 100 lost 2.3 per cent, 2.8 per cent and 6.4 per cent respectively.

European bourses followed the US lower. The tech and telecom sectors started strongly after a number of stock upgrades. But the sectors suffered later, following the Nasdaq lower. Poor Christmas sales sent the retail sector lower. Industrial production data from both France and Germany for November 2002 was encouraging. Despite this, the FTSE Eurotop 300, Dax & CAC40 lost 3.4 per cent, 3.9 per cent & 3.3 per cent.

London&#39s equity markets struggled – the primary index ended all five sessions lower to end down by 3.9 per cent. There was continued pressure on the banks and pharmaceuticals. Mid and small caps fared better with the FTSE 250 losing 1.3 per cent and the Hoare Govett Sm Cos index gaining 0.1 per cent.

Japanese investors ignored weak economic data that showed bank lending and machinery orders falling at the end of last year and sent the Nikkei 225 up 2.6 per cent. Gains in defensives and banks outweighed losses in exporters and technology stocks.

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