"The main worry is the direction long bond yields in the US are going to take," said Simon Kirton, manager of UK equities at Aberdeen Asset Management. "It's not going to be solved next week."
Bonds usually fall when interest rates rise, pulling down those financial stocks that hold large bond portfolios. US bonds ex-tended three weeks of decline on Friday after a bigger than expected gain in jobs and wages in July heightened expectations for a Federal Reserve interest rate increase later this month. That pulled UK bonds lower on concern that inflation will spill over to Britain and could hit shares like HSBC, Prudential and Lloyds TSB.
Last week, the FT-SE 100 index dropped 2.66 per cent, which means it has lost 5.59 per cent in the past three weeks.
Phone and computer-related shares led declines, with BT dipping 12.6 per cent, Colt Telecom sliding 15.6 per cent and Vodafone AirTouch losing 11.2 per cent.
The prospect of higher interest rates make investors less willing to bet on future earnings of those companies that command a premium because of their growth prospects; that particularly hurts phone and computer- related companies.
The market is unlikely to be buoyed by corporate profits while the telecoms, banking and pharmaceutical sectors are under a cloud, according to Mr Kirton. "I don't see it setting the heather on fire," he said.
BP Amoco, may rise. It is likely to report second-quarter earnings up 9 per cent to $1.25bn (pounds 77m) as it benefited from a 26 per cent surge in Brent crude oil during the period.
BSkyB is expected to report a fiscal profit for this year on Wednesday. Analysts believe the company will post earnings per share of 3.2p, down from 14.5p a year ago. Investors will be scrutinising results for any indications of growth in subscribers for its SkyDigital service.
CGU, the insurer, is among a string of insurers slated to report a first- half profit. Sun Life and Provincial Holdings and United Assurance Group, which specialises in door-to-door insurance sales, will also post interim results.
Among other companies expected to report first-half earnings are Smith & Nephew and Nycomed Amersham. BOC Group, the world's second-biggest gas supplier will post nine-month earnings.