Financial markets across the world are bracing for more of uncertainty as fighting in Iraq continues, with fears that a prolonged war or an unexpected event could undermine recent stock rallies and push oil prices back up.

Analysts said last week's trends in which stock markets rose sharply, oil prices plummeted and safe-haven investments lost favour should continue on the widespread view that US-led forces would prevail.

But signs that US and British forces were meeting resistance as they swept across Iraq towards Baghdad would make investors edgy and trading trends might not be as pronounced.

"Because reports [from Iraq] are still mixed there will be less euphoria in markets than there was on Friday," said Mr Adam Chester, chief economist HBOS Group Treasury. "Equity markets should continue to rally and bonds should sell off, but there will be caution."

"What investors will soon want to see is whether it's a quick war," said Mr Audrey Childe- Freeman, European economist at CIBC World Markets.

Last week's market moves were continuations of trends that hit in mid-March as the uncertainty of whether there would be a war cleared. Investors are firmly focused on the war's progress.

They are expected to keep a keen eye on the oil market, where prices have been tumbling from the near $40 a barrel highs they reached in the run up to the war.

Oil prices hit four-month lows on Friday as US-led forces secured some Iraqi oilfields and have dropped by 30 per cent in a week. US crude ended trading in New York at $26.90 a barrel on Friday.

Skyrocketing oil prices have been a worry because of their potentially disrupting effect on the world's stuttering economic growth.

The Dow Jones industrial average rose 8.36 last week and has had eight straight sessions of gain. In Europe, the blue chip FTSE Eurotop 300 gained 7.8 per cent for the week and is up more than 19 per cent since March 12th. - (Reuters)