Traders watch progress on Iraq closely

Researchers looked at share price changes at different points in the current tensions with Iraq.

They also watched reactions to rises in oil prices, gold prices and the value of the dollar.

The result was a so-called war basket of US stocks likely to benefit from a conflict, including energy and retail companies.

Conversely, those stocks which thrived in opposite conditions became the peace basket, comprised largely of financial and technology firms.

'Blah environment'

"The relative performance of our war and peace baskets appear to dovetail with the changing probability of war with Iraq," said Lehman Brothers analysts.

Iraq is a big excuse in the world for uncertainty about the world economy Sandy Morris, ABN Amro

They suggested peace basket stocks perform well not only if the probability of war decreases, but also if "there is a war and the probability of a swift end is high".

Murali Ramaswami, the author of the report, told BBC News Online the success of his diagnosis had been demonstrated last month.

"When the defence secretary claimed we were ready to go to war...right off the back of this, the war basket outperformed the peace basket."

Mr Ramaswami suggested US stocks had a heightened reaction to the geopolitical situation.

"It's possible that the war probabilities are not so clear in Europe.

"But it's possible that even in this 'blah' environment there are some opportunities."

A month of two halves

The Lehman Brothers "War Momentum or Peace Reversion" report looked closely at how stocks performed during such events as the passing of the UN resolution in November, Hans Blix's report to the UN in January and the US president's State of the Nation address.

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It divided January into two halves:

The first, when a war seemed less likely, and the second when the threat grew.

"Market sentiment quickly turned around during the middle of the month as the probability of a war occurring sooner rather than later became increasingly higher."

However, UK analysts were less convinced.

Sandy Morris, a defence analyst at ABN Amro, told BBC News Online: "Iraq is a big excuse in the world for uncertainty about the world economy.

"It's a great get-out."

Basket cases

After also considering resilience to gold, oil and dollar prices, Lehman Brothers researchers compiled a basket of 100 stocks likely to do well during times of conflict.

In this basket it placed energy companies such as Duke Energy, Constellation Energy and Exxon Mobile.

"We expect the war basket to continue outperforming if the probability of a war increases."

Also included are consumer stocks such as Starbucks and Procter & Gamble, and health companies Wellpoint and Cardinal Health.

Can luxury sales survive conflict?

The peace basket is made up of airline stocks such as Delta Airlines, luxury goods groupTiffanys and the telecoms company Motorola.

Mr Morris remains unconvinced but says the European markets are taking their lead from the US economy.

"Essentially it is all hanging on America - will US consumers have a complete holiday from spending for the next couple of years?