European equities could drift lower next week if companies reporting results such as Philips and Nokia fail to prove the war in Iraq is responsible for weak earnings.
Many companies including German airline Lufthansa have blamed the war for weak demand and bleak profit forecasts which some investors feel may have happened anyway.
Stocks remain trapped in the longest bear market since World War Two as investors fret about drab economic data, sluggish corporate earnings growth, geopolitical instability and the spread of the deadly virus Sars.
"Companies are likely to maintain their cautious stance as they do not know how much the weakness in demand for their products was due to the war or to more structural problems such as a weak economic backdrop or slowing consumer demand," said John Hatherly, head of global analysis at M&G Asset Management.
"Investors are likely to react negatively to this caution." Fund managers are worried European companies will not see the benefit of last year's heavy cost-cutting and restructuring because this will be eaten up by the steeper cost of raw materials and by a hit to sales due to dollar weakness.
They are also concerned sluggish consumer demand means firms will not be able to produce sales growth any time soon.
"Companies such as Nokia have shown they can cut costs to maintain margins but where will the top-line growth come from?" said Stuart Fraser, a European fund manager at Standard Life Investments.
"First-quarter earnings results are unlikely to be great as the global economy is weak."
Stock prices are also looking vulnerable after their recent bounce of more than 20 per cent since hitting six-year lows in mid-March, strategists and fund managers said.
"The market rally is over for the time being. Prices were driven up largely by technical factors, trading in derivatives markets and short-covering by hedge funds," said Rolf Elgeti, a strategist at Commerzbank, which recently reduced its exposure to equity markets. Heavyweight technology companies reporting results next week include the world's biggest mobile phone maker Nokia and Dutch consumer electronics giant Philips.
Some analysts are worried the tech sector's 23 per cent bounce since mid-March is not justified by the earnings outlook.
Nokia has struggled over the past two years with falling demand for wireless equipment as cash-strapped telecom operators cut spending on network upgrades after years of runaway growth.
"For the foreseeable future, the environment of the networks business looks likely to remain difficult," said Commzerbank analyst James Heal, who has a "reduce" rating on Nokia shares.
British chip maker ARM reports earnings on Monday. Philips publishes on Tuesday and Dutch chip production equipment maker ASML on Wednesday.
Analysts expect Philips' worst performing unit will be semiconductors and that its largest unit, consumer electronics, will be barely profitable. ASML is seen having a difficult first quarter with its order backlog shrinking. Cyclical companies will also report, including the world's biggest roller bearings maker SKF on Tuesday.
"If investors decide to put on rose-tinted glasses and push the market higher then we advise exposure to industrials such as ThyssenKrupp and SKF as their shares are much less vulnerable than techs and are supported by dividend yields," Commerzbank's Elgeti said.
Retailers will be represented by a trading statement from fashion group Burberry and interim results from department store Debenhams, both on Tuesday.
There will be March sales from Swedish fashion retailer Hennes & Mauritz on Tuesday and French retailer PPR's first-quarter sales on Thursday.
On Wednesday, Dutch drugs and chemical giant Akzo Nobel releases earnings for the first quarter of 2003, a year the company has described as tough.