European markets braced for choppy waters and interest rate squalls

EUROPEAN stock markets are expected to remain volatile this week amid continued fears that central banks will raise interest rates soon.

The week will get off to a slow start with the region's biggest market, London, closed today.

Earnings will continue to pour in with financials taking centre stage. Swiss bank UBS reports first-quarter results tomorrow, followed by French bank BNP Paribas and insurer AXA on Thursday.

Elsewhere in the banking sector, Norway's largest financial group DnB NOR Sweden's SEB and Danske Bank all report quarterly figures.

Analysts said worries about a growth slowdown in China's economy, combined with tensions in Iraq may drag stocks lower and overshadow good news on the corporate front.

"The corporate picture is looking very good with profits coming through better than expected both in Europe and the US," said Nigel Cobby, managing director at JP Morgan.

"But the uncertainty over Iraq, interest rates and China will continue to sap sentiment," he added.

However, Mr Cobby warned that these fears may be overdone and posed little risk for stock markets in the medium term.

The Chinese economy is likely to remain a "significant global growth engine" particularly for the material and capital goods sector, JP Morgan strategists said, while the US economy remains on track for growth.

Investors will remain nervous ahead of key interest rate decisions from the Federal Reserve tomorrow, followed by the Bank of England and European Central Bank on Thursday.

Many economists on Wall Street believe the Federal Reserve will start raising interest rates this summer, but no change is expected in May.

The Bank of England, however, is expected to raise borrowing costs to 4.25% because consumer demand still shows no signs of slowing down. The ECB is expected to keep rates at 2%.

The old adage "sell in May and go away" may add further pressure. Most of the year's stock market gains typically come between November and April, while other asset classes including cash offer better returns from May to October.