recovery were some of the major characteristics during the month of July, according to the Bank of Bermuda's Monthly Market Outlook.

Uncertainty about the US economy was compounded by the strong Democratic showing in opinion polls during the run-up to the US presidential elections later in the year, says the report.

It adds: "Equities retreated across the board against this background although predictions of a major international shakeout have thus far been averted, testimony to the underlying support still provided by the interest rate trend.

"The US bond market was able to make further progress, particularly at the long end, as was Japan's fixed interest sector, aided by a cut rate.

"European bond markets, particularly where currencies were perceived as weak, had a hard time of it in the face of further tightening by the German authorities and Maastricht worries.

"Concerted intervention was required at the end of the month to stem the dollar's decline as perceptions of worsening interest rate differentials and `triple-dip' recession talk weighed heavily on already depressed sentiment.'' World markets were unnerved by disparate moves in world interest rates during July, says the report.

On the main world currencies, the Bank of Bermuda reports that sterling has fallen to the bottom of the Exchange Rate Mechanism as continued weakness has encouraged rumours of a devaluation.

But the Bank states: "We view the likelihood of a devaluation as slim at best.'' On the Canadian dollar, it says: "The largest economic slump since the 1930s has given Canada the mixed distinction of having the lowest inflation rate (plus 1.1 percent in June) and the highest unemployment rate (11.6 percent in July) of the G7 countries.'' The Bank recommends that "dollar-based investors sell their remaining European currency holdings and long dollar positions should be initiated by European-based accounts''.