World stock markets are set for a volatile end to the week as the threat of more profit warnings and a possible attack on Iraq create jitters, analysts have warned.

A string of poor results and ongoing revelations from corporate scandals have already hit markets on both sides of the Atlantic.

Weak updates from banking giant JP Morgan and software group Oracle have also compounded an already bleak economic outlook.

But analysts say there is little to boost investor confidence in the short term, and that markets are facing a key test of momentum.

Domino effect

It's like going to the dentist for root canal treatment - you hope it can be sorted in one sitting but you keep having to endure more pain every few months

Stuart Fraser, Standard Life Investments

Any rallies earlier this week had been forced back by Wednesday evening, when markets across the world were knocked by a string of poor results.

New of two high profile sackings at the investment bank Merrill Lynch also sent shockwaves through the market.

JP Morgan Chase, the second largest US bank, was a key catalyst to the falls, as it warned that bad loans and subdued trading results would hit third-quarter earnings.

The news sent the company's own shares down 9.5% to $19.50 and also affected the banking sector as a whole, dragging down markets across the world.

In the UK, Barclays was closed down 8.2% at 403 pence, while the Dutch group ABN Amro fell 7.2%.

Other companies reporting tough conditions included software group Oracle which again tested tech stocks and helped dragged down the German Dax 30 index by 5%, to a five-year low of 3,124.

'Worse than the dentist'

The US Dow Jones industrial index managed to recover some of its earlier falls by the close of trading, but still finished down 0.4% at 8,173, a six-week low.

Analysts said it was hovering dangerously near the crucial 8,000 mark and that the run of bad news had prompted suggestions that the US recovery would be slower than hoped .

Stuart Fraser, head of European equities at Standard Life Investments, said: "It's like going to the dentist for root canal treatment - you hope it can be sorted in one sitting but you keep having to endure more pain every few months".

Shadow of war threat

As well as the disappointing company news, analysts said the possibility of an attack on Iraq was still preying on investors' minds.

Despite president Saddam Hussein's concession to re-admit U.N weapons inspectors, the US has said it still wants to pass a resolution backing tough action against Iraq.

"The risk of war is a heavy risk, which still weighs on the market," said Francois Garnier, manager of HMG Euro-Opportunite.