WHEN the train bombs went off in Madrid 10 days ago killing 202 people and injuring 1,500, Cesar Molinas, a 50- year-old Spaniard living in London went into shock. “On Thursday and Friday I was in a daze,” he said.

Then on Saturday he flew to Madrid to vote in the Spanish election. There he picked himself up and got on with his job — taking the pulse of his native country and translating his soundings into buy, sell or hold advice for investors.

Molinas is a global asset- allocation strategist at Merrill Lynch. He is part of a team that offers six-month views on risks and opportunities in financial markets.

On Tuesday he published a note on the aftermath of the Madrid bombings. He said the victory of the socialists and prime minister-elect Jose Luis Rodriguez Zapatero would mean not only the withdrawal of Spanish troops from Iraq, but also a tilt in foreign policy away from America and towards France and Germany.

The rest of last week he took calls from clients. The questions were pointed. What’s on the cards for the deregulation of Spain’s phone industry? What’s the likely effect on Spanish utility stocks of the socialists’ plan to speed up compliance with the Kyoto agreements on climate change? Should investors unload Spanish stocks and bonds?

Molinas’s conclusion was that despite the horror of the bombings and the drama of the election result, the market fundamentals remain the same. “The deadline for the withdrawal of Spanish troops is June 30,” he said. “That’s the same day as the deadline for the handover of American power in Iraq. Zapatero’s troop-withdrawal announcement may be less significant than it seems.”

Molinas’s point of view is mirrored in the City at large. Financial professionals summarise the bombings as a human catastrophe but with limited impact on shares, bonds and other financial assets.

George Magnus, chief economist of UBS Investment Bank, said: “If there were another terrorist attack — if something were to happen at the 2004 Olympics, say — the picture might change. But now it’s hard to say what the effects of Madrid will be.”

Bob Parker, deputy chairman of Credit Suisse Asset Management, said: “Terrorism has become a permanent factor in business life.” And Alan Brown, group chief investment officer at State Street Global Advisers, commented: “The Madrid attack, while horrific, has not been enough to destabilise the economy.”

Terrorism is on people’s minds now — but when market analysts gaze into their crystal balls they see two more serious threats.

One concern is about valuations. After a year of rising share prices, some analysts say that investors have become too optimistic and prices may have got ahead of themselves.

More important is the slowdown threat — the risk that the global economic recovery underpinning the stock-market rally is running out of steam.

The consensus view is that the American economy will expand 3%-3.5% this year, while Europe grows 1.5%-2%. Talk to most investors, however, and you are likely to find that many fear that growth will fall short of this.