Oil and gold are among the few favoured investments as stock markets continue to fall on economic weakness and fears of a protracted war.Investors are becoming particularly nervous about signs of weakness in consumer spending, especially in the US and the UK, where fear of a possible collapse in overvalued house prices is adding to uncertainty

Global investors hoping to see an end to the three-year losing streak in US and European equities this year are starting to think again and to put their substantial cash piles to work elsewhere, such as in corporate bonds and precious metals.

Commodities, an almost forgotten asset class for most of the 1990s, are seeing a round of speculative interest as prices are bid up to levels not seen for years. Gold is trading at a six-year high.

If 2003 does not produce positive stock market returns, it will mark the first four years of consecutive losses since the Great Depression. After the punishment of the past three years, many retail investors have become wary of the declining stock market.

Recent figures show historically high levels of cash - some $2,700 billion (€2,490 billion) - sitting in US money market funds, which in better times would be directed into equities. UK fund managers expect negligible sales of tax-free individual savings accounts this year after the amount invested fell by a third last year to £2.3 billion (€3.46 billion) in the January to April sales season.

Companies across the board are cutting back on capital expenditure, as few see much growth in their margins. Many sectors are still plagued by over-capacity and companies are focused on paying off debt to improve their credit ratings. That is likely to put a brake on big increases in profits.

Within the corporate gloom, some sectors are faring more badly than others. The concern over consumer debt has cast a shadow over banks; and insurers are at risk from further falls in the equity market.

The corporate sector has yet to show much response to the loosest fiscal policy for 40 years. White House aides predicted that President George W Bush's proposed economic stimulus package, with its cut in taxes on dividends, would boost the stock market by about 7 per cent. However, share prices fell on the day he announced the measure.

There are parallel economic difficulties and financial uncertainties in Europe. The German economy is stagnating, not helped by the euro reaching a three-year high against the dollar and the fiscal constraints of the European Union's Stability and Growth Pact.

The Bank of England has held back from making the interest rate cuts for which the manufacturing sector is crying out, because it is concerned about giving another stimulus to the overpriced UK housing market.

Consumer spending has provided a prop for the global economy in the past three years but if households cut back, either because of a fall in house prices or an increase in unemployment, it could knock the global economy back into recession. The outlook for world stock markets also depends on the outcome of any conflict with Iraq. - (Financial Times Service)