Oil shares were pushed higher by rising fears of an attack on Iraq and suggestions that the continuing strike in Venezuela would hamper crude oil supplies.

But retail shares fell because of worries about weak sales in the crucial Christmas period and weaker confidence for the year ahead.

Analysts said uncertainties surrounding the global economy and the effects of a possible war were taking their toll on stock markets.

Encouraging close

The FTSE 100 index of leading shares closed for Christmas up just 5 points at 3,942 - a far cry from its level of about 5,200 points a year ago.

There is an awful lot of doubt as to what's happening, the last-minute frantic frenzy is coming later than ever Alex Scott, Seven Investment Management

Analysts said the market had done well to end on a positive note as it closed down for two days, until Friday.

"We had that horrible period when it looked like the FTSE was heading back to 3,800," said Bob Semple, a strategy analyst at Deutsche Bank.

Market watchers were also cautiously optimistic about what lies ahead.

"By next summer, if not before, investors should see US growth pick up again.

"This is turn should fuel an improvement in earnings momentum, and hence market confidence," said Rupert Thompson, an analyst at ETrade Securities.

Retail dash

Retailers dragged down the FTSE's performance even as they were encouraging shoppers through their doors by offering discounts of up to 50%.

Our most optimistic forecast is that it (the stock market) rises to 5,500 but we are only putting a 5% to 10% chance on that happening Alex Scott

Alex Scott at Seven Investment Management told BBC News Online: "There is an awful lot of doubt as to what's happening, the last-minute frantic frenzy is coming later than ever."

High Street groups Marks & Spencer and Next were among the fallers. M&S was down 2% and Next 1% lower as reports suggested that overall spending was lower than last year.

Looking up

Oil stocks rose on suggestions that a war with Iraq was becoming a real possibility.

Shell closed for Christmas 2% higher while BP rose 1%.

Analysts then set to work predicting the direction of the FTSE 100 in 2003.

Almost all were confident of a rise in the stock market's performance, but with varying degrees of optimism.

Estimates ranged from a rise of about 6% to 4,200 in the year, to as high as 5,500.

Mr Scott said: "Our most optimistic forecast is that it rises to 5,500 but we are only putting a 5% to 10% chance on that happening."