Market nerves stretched despite rebound

Investors are braced for a nervous start to the trading week today despite the late rally on Wall Street which sparked a strong rebound on Friday.

Investors are braced for a nervous start to the trading week today despite the late rally on Wall Street which sparked a strong rebound on Friday.

Although some quiet returned to the Middle East at the weekend, and there were reassuring noises yesterday from oil producers about raising output to prevent further market instability, tension in the region remains high.

With 48 US companies reporting third-quarter results this week, as well as European tech favourites Philips, Ericsson and SAP, investors are likely to be nervous that any further failures to match analysts' expectations will spark a repeated of the heavy selling that followed disappointing numbers from Lucent, Yahoo! and Motorola last week.

Ericsson, the world's biggest cellular phone equipment maker, has already warned investors to expect lower earnings this time because of losses at its phone manufacturing operation. The stock trades at 54 times earnings.

Bad news from leading US internet company America On-Line, which is buying Time Warner, the media group, and which reports on Wednesday, may be enough to trigger further selling. Advertising revenues in the US are believed to have been badly hit by the drying up of ad spending by cash-strapped dot.com companies.

Microsoft also reports first-quarter numbers on Wednesday. The shares are trading at a two-year low.

There is also likely to be some concern about US inflation ahead of US consumer price numbers due out on Wednesday. Analysts say these are expected to show recent oil price rises feeding into a 0.4 per cent rise in the cost of living in September. That is after a fall of 0.1 per cent the previous month.

British investors will be watching nervously to see how Marconi, the telecoms equipment group, is received when it lists on the Nasdaq tomorrow. Some analysts believe that with the technology bubble having been comprehensively popped it has missed the boat.

Several big European initial public offerings are priced this week including Alcatel Optronics, a spin-off from Alcatel, the French telecom equipment giant, and Cableeurope, Spain's biggest cable TV operator.

Yesterday AWD, a German financial services company, said it was postponing an IPO for three days following complaints from investors that they had received insufficient information about one of its real estate funds.

Banks are also likely to remain in the spotlight. The sector saw shares slide dramatically on concerns last week about debt exposure to the telecoms sector.