Analysis By Myles Neligan BBC News Online business reporter

It's interest rate decision time again

Shares could edge higher in London over the next few days after unexpectedly strong US jobs data out on Friday revived hopes that the world's largest economy is firmly on the road to recovery.

The FTSE 100 index jumped 2.8% last week to close at 4,257 on Friday, fully recouping heavy losses the previous week triggered by concerns over a weakening dollar and rising oil prices.

The rally came as the market digested news of the first net weekly increase in US employment levels since January, along with far better than expected UK growth figures.

The data reinforced hopes that the global economy is on the verge of a rebound after three years of sub-par growth, lifting economically sensitive banking and energy stocks.

Traders continue to hope that strong third quarter corporate earnings, due out in the next few weeks, will provide concrete evidence that a turnaround is indeed under way.

Corporate hopes

However, some forecasters warn that with expectations for the third quarter results season running high, investors may be disappointed.

The hawkish tone of September's MPC minutes suggests that this meeting will be a close call HSBC bank

"We still feel very wary about conditions, notwithstanding the better (US jobs figures)," said Jeremy Batstone, head of investment strategy at the Fyshe Group.

"The fact remains that going into the third quarter, profit expectations are very aggressive."

Mr Batstone warned that in order to meet their profit forecasts, big US firms may be forced to cut costs by laying off more staff, ensuring that unemployment levels continue to rise in the medium term.

The weaker dollar, which will hurt export earnings in Europe, and could also increase inflationary pressures in the US, is also clouding the horizon.

Fyshe Group strategists believe that the FTSE is on target to end the year at about 4,500.

For the past six weeks, the index has hovered either side of 4,200 for about six weeks without convincingly breaking the 4,300 barrier.

MPC time

This week, UK investors will be focusing mainly on the Bank of England's interest rate decision for October, due out at midday on Thursday.

While most forecasters expect rates to remain on hold at 3.5% this time, tentative signs of accelerating growth and persistently high levels of consumer debt have lifted the probability of a rate increase before the end of the year.

The minutes of the Bank's interest rate meeting last month showed that some monetary policy committee (MPC) members were coming round to the view that rates should rise in the near future.

"The hawkish tone of September's MPC minutes suggests that this meeting will be a close call," analysts at HSBC bank wrote in a note to clients.

Investors will also be keeping an eye on the outcome of the regulatory inquiry into the proposed merger between ITV broadcasters Carlton and Granada, expected on Tuesday.

Carlton and Granada shareholders will be hoping that the government clears the tie-up without forcing the companies to sell off their advertising sales departments.

Carlton and Granada have previously warned that disposing of their sales houses - a suggested remedy designed to limit the impact of the merger on the television advertising market - would undo many of the benefits of the merger.

The retail sector will also be in the spotlight, with trading statements due from Marks & Spencer, Carphone Warehouse, Boots, and Matalan.