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Investment analysis

Most of the world&#39s major stockmarkets paused for breath last week as another set of disappointing US employment numbers and nervousness ahead of the second anniversary of the terrorist attacks on New York and Washington gave investors an excuse to bank some healthy profits.

Having risen for five consecutive weeks, which had taken the index to a 14-month high, the Dow ended 0.3 per cent lower. The Nasdaq also retreated from its recent 18-month high, with the index giving up 0.3 per cent as investors banked profits in recently high-flying technology issues.

On the economic front, the August payrolls report in the US revealed a seventh straight month of job cuts, taking the total for the year to just under 600,000, raising fears that the recovery may be more fragile than some of the more upbeat forecasts.

In the UK, profit-taking centred on cyclical stocks which have massively outperformed the defensives over the last few months. Having closed on Monday at its highest level since late August last year, the FTSE 100 lost ground, ending the week 0.5 per cent lower, with recent strong performers, ICI (-12.3 per cent) and Reuters (-12 per cent) leading the list of fallers.

The FTSE 250 followed a similar pattern, albeit with a steeper decline due to its higher weighting in cyclical stocks. The index fell 1.5 per cent, with technology issues heading the list of losers. Profit-taking was also evident among smaller companies with the Hoare Govett smaller companies index ending the week 1.2 per cent lower.

In Europe, stocks pulled back from the previous week&#39s best levels of the year, heading back into the narrow trading range in which they have spent much of the last few months. Over the week, the FTSE Eurotop ex UK index fell by 1.9 per cent with the French CAC40 and German Dax underperforming, falling by 2.1 per cent and 2.8 per cent respectively.

In Japan, share prices again rose at the beginning of the week, then ran into profit-taking before rising strongly again on Friday. Over the week, the Nikkei 225 gained 0.6 per cent with the index now having risen 25 per cent since the start of the year.


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