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Investment analysis

It was a volatile week for global equity markets with concerns over events in the Middle East, high oil prices as well as the prospect of higher US interest rates continuing to unsettle investors. However, prices recovered towards the end of the week and by the close of Friday, the FTSE World index was trading 1 per cent higher.

It now seems that UK interest rates may have to rise more than most economists had anticipated following the release of the latest MPC Board minutes which showed that the committee voted 9-0 in favour of this month&#39s quarter-point increase and raising rates by 50 basis points was also discussed.

The market is now expecting interest rates of 5.5 per cent by March 2005 and while the latest CPI figures suggest that there is little inflation currently in the system, the MPC warned it is likely to breach its 2 per cent ceiling in two years. The latest figures on mortgages show there is no let-up in demand for residential property, with lending rising by a record £6.4bn in April.

On the stockmarket, mid caps were given a boost with the bid by Belgium&#39s UCB for the UK&#39s biggest biotech company, Celltech, helping the FTSE 250 end the week with a gain of 0.2 per cent.A string of decent corporate earnings helped the FTSE 100 recover most of its losses of earlier in the week, with the index trading 0.2 per cent lower by Friday&#39s close. Smaller companies continued to underperform, with the FTSE small Cap index ending the week 1.2 per cent lower.

In the US, there was little news to drive markets and, while prices fell heavily on Monday, this was seen as an opportunity to pick up stock by bargain-hunters. By Friday&#39s close, the Dow Jones and S&P 500 had fallen by 0.5 per cent and 0.2 per cent respectively while the Nasdaq ended 0.4 per cent higher.

It was a better week for the Japanese stockmarket and, while shares initially fell, prices soon recovered after the release of the latest GDP figures which showed the economy having grown at an annualised rate of 5.6 per cent in the last quarter. By the end of the week, the Nikkei 225 had risen 2 per cent to 11,070.

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