Oil and dollar fall but Dow marches on

The oil price posted its first annual loss since 2001 while the bellwether US stock index, the Dow Jones, was not far off its record at the end of the last trading day of a volatile 2006.

Oil and the dollar took a pummelling while emerging stock markets linked to the BRIC economies - Brazil, Russia, India and China - were the clear winners.

Markets were rocked by a series of scares that sent prices of stocks, currencies and commodities gyrating wildly at some points during the year. Yesterday, the Dow closed 38.37 lower at 12,463.15 - within sight of its record closing level of 12,511 and its intraday high of 12,529.

The FTSE 100 ended a half-day of trading down 20.1 points, at 6,220.8, having gained about 11 per cent year-on-year. The FTSE 250 mid-cap index did much better, delivering total shareholder return - share price gain with dividends reinvested - of 30 per cent.

Although the FTSE 100's gain followed a 17 per cent rise in 2005, it was in mid-table in the global league. Peru topped the table with a 152 per cent rise on the back of the rise in metals prices that lifted the mining stocks that make up half of the index. Cyprus was second, followed by Venezuela with a 119 per cent rise (all gains have been rebased to a sterling exchange rate).

China was the best-performing major market, with the 300 index doubling over the past year. The Hang Seng China Enterprise Index rose 69 per cent, highlighting the growing power of the world's most populous region.

The other region at the top of the table was Russia and eastern Europe. The Belgrade market was up 67 per cent while Croatia was up 57 per cent. Russia herself was the 10th best performer, up almost 50 per cent.

The major losers were in the Middle East, where a three-year equity bubble burst as the geopolitical tensions took their toll. Saudi Arabia's Tadawul All Share Index lost 58 per cent of its value; Dubai General Index and the Abu Dhabi General both lost 48 per cent.

Several stock markets, including the FTSE 100, suffered a vertiginous drop in May as investors collectively realised valuations were too high. But the recovery in the second half of the year reassured them the world was not set for a fresh financial crisis.

The oil market also saw two distinct patterns in the first and second halves of the year. The benchmark West Texas Intermediate began the year at around $61 a barrel and hit an all-time record of $76.98 in August.

It then fell sharply, hitting a low for the year of $55.85 as concerns over US growth, mild temperatures and higher-than-expected levels of stocks pulled the rug from under its feet. Yesterday the market closed down 20 cents at $60.33 a barrel after briefing falling below $60. It was the first time since 2001 that oil has ended the year below where it started.

Other asset classes did better. Government bonds produced returns of 8 per cent, according to the JP Morgan index, while corporate bonds returned 9.7 per cent. Property was the star performer.

The big story on the currency markets was the dollar, which suffered its biggest fall against the pound for 14 years. The 14 per cent drop in the dollar left the pound at $1.9602 yesterday.

Precious metals provided hefty returns in 2006. Gold surged 41 per cent to hit a 26-year high of $730 an ounce in May before retreating, but the metal is still higher by about 23 per cent from its last price in 2005.