LONDON (AFP) - The London share market could reach new two-year highs next week if worries about rising oil prices and the outlook for company earnings ease, analysts said.
The FTSE 100 index of leading London shares reached a two-year high above 4,600 points on Wednesday, helped by signs British interest rates may be close to peaking.
But the index later eased back to close at 4,578.1 points on Friday, down 12.9 points, or 0.28 percent, over the week.
"If it does look as if interest rates are peaking, that's good news for markets," said Mike Lenhoff, of Brewin Dolphin Securities.
"One hopes that they're peaking not because the economy's running out of steam, but only because the heat is being taken out of the housing market."
Official records showed this week that the decision by Bank of England policymakers on September 9 to keep interest rates at 4.75 percent was unanimous.
The committee noted that third quarter economic growth could be weaker than anticipated, and that house price inflation may ease by more than forecast.
But one negative factor hanging over equities is the oil prices, which hit fresh record highs in London this week and flirted with historic bests in New York after Hurricane Ivan caused a plunge in oil inventories.
However investors appeared to be coming to terms with rising energy prices, while a fall could be the catalyst for a new stock market rally, analysts said.
"I think more recently equity markets have begun to take the oil price a bit more in their stride," said Alex Scott, investment strategist at fund manager Seven Investment Management.
"If we see a significant pullback in oil that could bring a sigh of relief for equity markets, but of course falling oil prices could be disinflationary as well so it needn't be unmitigated good news."
Dealers are also set to start turning their attention to the next corporate earnings season in the US and Europe, though there is little company news on the calendar in London next week.
"Expectations have been set quite high as analysts, certainly in the UK and Europe, have been pushing ahead their forecasts, so that presents a challenge," said Scott.