MARKETS in the US and the UK have enjoyed a much needed recovery this week following the savage sell-off since the terrorist attacks.

Much of this can be put down to bargain- hunting, with many stocks looking very attractive at such low prices.

On the UK markets, the banking sector has been one of the main sectors to benefit, with most banks now yielding very good dividends caused by the decline in share price.

They offer a somewhat defensive play for investors.

Confirmation

The insurance sector has also fought back following confirmation that the Financial Services Authority had eased the "resilience test" rule for insurers, to stop enforced selling of large tranches of shares and help prevent a further plunge in share prices.

In another attempt to halt the market downturn, HBoS followed the lead of Legal & General and Foreign & Colonial, by announcing that it is to stop the practice of "stock lending".

This is where traders borrow stock to sell and then buy it back again at a lower price, a procedure known as "shorting", which leads to further falls in markets.

Another sector, which has shown a sharp recovery, has been the biotechnology sector.

The likes of Celltech Group, Oxford GlycoSciences and Cambridge Antibody Technologies, which all saw huge gains during the technology boom, have all surged this week after having been, what now appears, oversold.

On a negative note, music company EMI Group issued a profit warning this week and saw its shares plummet.

The company warned that annual profits may fall by up to 20 per cent and said it was taking swift, decisive action to address the situation, which would ultimately lead to job losses.

Also, Lloyd's of London, the world's largest insurance market, has estimated that its net exposure to the terrorist attacks on the US is £1.3 billion, or 12 per cent of its total underwriting capacity for 2001.

Significant

This is the largest single loss in Lloyd's history. The chairman has said the figure will have a significant effect on the market, but its strong capital base would absorb the loss.

In the UK, not surprisingly, figures out this week showed that confidence in the British economy has hit its lowest level since the 1980s recession.

There is still massive uncertainty with fear of war around the corner. History has shown the markets to be at their worst during the period leading up to war, but have then shown a good recovery.

However, the current situation has never been seen before, so it is impossible to predict the market's response this time round.