LONDON, Dec 27: World stock markets are set to build on this year’s strong gains in 2006 amid buoyant global economic growth and tame inflation, with re-awakening economies Japan and Germany leading the pack, analysts said. Stock exchanges posted multi-year highs in 2005 as mergers, coupled with robust economic data and company results, offset record high oil prices and the July 7 deadly attacks on London’s public transport system.

Global stock markets are ending the year in style, with indexes in London and Paris striking the highest levels for more than four years on December 23.

Frankfurt’s DAX 30 has hit the highest levels for almost four years during 2005, while Tokyo’s benchmark Nikkei-225 index has soared by about 40pc over the year to strike a five-year high.

US indexes saw single-digit percentage gains.

Next year will see “continual decent gains” in stock markets, according to Barclays Stockrokers’ Hilary Cook.

When the world’s second-largest economy (Japan) has decided to wake up, and when the world’s third-largest economy (Germany) has decided to wake up, you can feel quite optimistic about life because America has done an awful lot of the running and cannot do it forever, she said.

Owing to growing optimism over the Japanese economy and a softer yen, Japanese share prices soared higher in 2005, with Tokyo’s benchmark Nikkei-225 index near the key psychological 16,000 points level just before Christmas.

Eurozone growth, meanwhile, is gaining momentum amid stronger-than-expected economic activity in Germany, the biggest economy in the 12-nation single currency area, the EC said earlier this month.

Germany and Japan can drag the rest of the world along with them, Cook added. Japan’s partly being driven along by China and partly by internal structural reform. It is very good news.

Meanwhile, Merrill Lynch analysts said that US equity markets would “continue to perform well next year” with high single-digit returns.

The overall trend of foreign equity markets outperforming the US remains intact, they added, noting that Japan and emerging Asia should be top performers next year.

Mike Lenhoff, chief strategist at Brewin Dolphin Securities, predicted that by end-2006, the Standard and Poor’s 500 would reach 1,375 points, while London’s FTSE 100 index of leading shares would hit 6,100 points,

Wall Street’s broad-market S and P’s 500 index has gained around 4.48 per cent this year, since the same stage in 2004.

Back in London, the FTSE 100 last Friday hit 5,608.2 points — the highest level since July 2001.

The index has risen by about 17.0 per cent from a year earlier, while Frankfurt’s DAX 30 has won some 27pc and in Paris the CAC 40 has jumped approximately 25 per cent.—AFP