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Investment analysis

Strong economic data from the US helped stabilise global markets at the end of the week but it was not enough to prevent the benchmark FTSE World Index from ending the week 1.3 per cent lower.

Earlier in the week, concerns about the Iraqi situation and the health of corporate America weighed heavy on Wall Street , with the Dow falling below 8,000. However there was some positive corporate news, with Procter & Gamble, Merck, American Express and Walt Disney reporting stronger than expected earnings&#39 figures. Encouraging economic news also helped lift sentiment with the Chicago purchasing managers&#39 index of manufacturing activity coming in at 56 for January, topping an expected 53, from 51.7 in December. The Fed&#39s decision to leave rates on hold at 1.25 per cent on Wednesday was widely expected. Amid all this, the Dow, S&P 500 and Nasdaq 100 lost 0.9 per cent, 0.7 per cent and 1.3 per cent respectively.

It was a mixed picture for European equities. The representative FTSE Eurotop 300 remained relatively flat but the two main euroland blue-chip bourses Germany&#39s Dax & France&#39s CAC40 posted positive returns of 1.1 per cent & 1.4 per cent respectively. France Telecom performed strongly after reporting sales growth in line with expectations and full-year earnings to beat current estimates. German utility group Eon also gained after an out-of-court agreement with objectors to its disputed takeover of Ruhrgas, the German gas importing company.

It ended a bleak month for London. The primary index continued to fall at the start of the week, registering its 11th fall in a row. The FTSE ended the week down by 1 per cent and the month down by 11 per cent. The index touched 3,480.8, its lowest closing level since October 1995 before firming up on Friday on the back of strong US economic data. UK small and mid cap stocks fared a lot worse, with the Hoare Govett Sm Co and FTSE 250 indices losing 4.3 per cent and 4.9 per cent.

However, a boost was given to the markets which responded on Monday this week after the FSA late on Friday relaxed the rules for governing how insurance companies calculate solvency margins.


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