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Investment analysis

Further encouraging economic news helped push the majority of the world&#39s stockmarkets higher last week, with investors able to put the recent worrying corporate developments behind them for the time being.

Federal Reserve chairman Alan Greenspan said he was “cautiously optimistic over the outlook for the US economy” and within 24 hours the revised fourth-quarter GDP figures confirmed growth of 1.4 per cent, significantly ahead of expectations.

The Dow Jones rose by 4 per cent to its highest level in six months while the S&P 500 rose by 3.8 per cent.

In the UK, the latest GDP figures confirmed that the economy was flat in the fourth quarter, the first time there has been no growth in 10 years. However, as in the US, the news from the manufacturing sector was far better than expected, helping the market overcome a £1bn share placement from HBOS and a 30 per cent decline in the share price of Shire Pharmaceuticals following the company&#39s warning on future profits.

Over the week, all the major indices ended higher, with the FTSE 100 rising by 2.2 per cent, the 250 index by 3.2 per cent and the Hoare Govett smaller companies index by 0.7 per cent.

In spite of disappointing GDP numbers from Germany, Europe&#39s equity markets enjoyed an excellent week, with better than expected news on the manufacturing sector following hot on the heels of sharply higher business sentiment figures.

In Japan, domestic pension buying and tighter regulations on short selling helped the Nikkei 225 end the week at a two-month high following a rise of 4 per cent. Elsewhere in the Far East, Hong Kong fell by 2.2 per cent although there was better news from Thailand, where the stockmarket hit its highest level for 21 months.

In the bond markets, government issues reacted negatively to the stron-ger than expected economic data, push- ing the yield on 10-year treasuries to just under 5 per cent, while in the UK, 10-year gilt yields ended the week up by 5.5 basis points at 5.05 per cent.


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