The OECD warned today that despite recent recovery trends, global financial markets faced numerous risks that could dent investors' optimism.
In its twice-yearly report on market trends, the Paris-based Organisation for Economic Cooperation and Development noted that a more positive global economic outlook and a comparative easing of geopolitical uncertainties had rallied investors.
The United States and Japan, it said, have surprised with second-quarter economic growth - now being supported by third quarter data - and even the lagging euro zone was seeing upward revisions for 2004 growth.
But it tempered its report with a list of dangers ranging from a strengthening euro to higher oil prices and lower consumption triggered by higher interest rates, unwinding house prices and stubbornly high unemployment.
"Downside risks may [temper] the optimism," the OECD said. "For example, rising interest rates in the future could curb investment and consumption expenditures."
Financial markets were given a taste of possible future interest rate rises this week when the Bank of England reported that policymakers had only just voted against tightening.
The OECD said that consumption could be particularly dented if higher rates led to less mortgage refinancing and by higher debt burdens, such as are already being seen in the US and Britain.