ANALYSTS say that the turmoil in the Middle East could herald the end of 16 consecutive quarters of double-digit earnings growth for American companies.

According to Howard Silverblatt, a senior index analyst for Standard & Poor’s, companies in the S&P 500 index have recorded a rise of 9.5 per cent for the second quarter of 2006. This compares with a jump of 15.3 per cent in the previous quarter.

So far, the strength of US corporate earnings has helped to keep markets buoyant despite high oil prices and worries that the US Federal Reserve may soon raise interest rates.

Serhan Cevki, an economist with Morgan Stanley, said that the fighting between Israel and Hezbollah in southern Lebanon had coincided with “uncertainty in global markets over the direction of interest rates in the US”.

Mr Cevki added: “The main risk to the global economy is the price of oil, which could very well impact [on] corporate profits and consumer sentiment.”

Global stock markets fell last week, amid fears that the fighting between Israel and Hezbollah may disrupt oil supplies, dampening corporate earnings in America and slowing growth in the world’s largest economy. Traders say that the oil price could soon jump to $80 after crude hit a record high of $77.95.

Investors have seized on disappointing earnings statements last week by Lucent, Alcoa and General Electric as proof that the American economy is slowing. Alcoa, the world’s largest producer of aluminium, reported profits below analysts’ estimates while Lucent, the telephone-equipment group merging with Alcatel, reported profit of two cents a share, half the sum expected on average by analysts.

Concern was also raised over American consumer spending if the oil price stays high. These worries were exacerbated by US data revealing falling consumer confidence and weak retail sales. On Friday, the Commerce Department said that retail sales had slipped 0.1 per cent in June, surprising economists, who had expected a 0.4 per cent rise.

Analysts say that investors are showing heightened sensitivity because of a tense environment. The Vix index, a measure of volatility in the US stock market traditionally seen as a reflection of investor fear, leapt 29 per cent last week to 18.05.

Investors found further worry in a report by Standard & Poor’s noting a jump last month in the number of American and European companies with credit ratings cut to “junk”, from investment grade.

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