Investor optimism plunged in the aftermath of hurricanes Katrina and Rita, according to the latest UBS/Gallup Index of Investor Optimism.

The index is 27 points lower than last month at 34, reaching its lowest point in two-and-a-half years. Energy costs appear to be weighing heavily on investors’ minds and dampening their outlook of the investment climate, UBS said.

“Investors were clearly jolted by the impact of Hurricanes Katrina and Rita, the spiraling rebuilding costs and the implications for oil supply and distribution,” said Maury Harris, UBS chief US economist. “Having also lived with high energy prices this summer, investors now view rising costs as part of a longer-term trend, rather than a short-lived phenomenon. “

The great majority of investors say the current energy prices are hurting the U.S. investment climate, 54% say the investment climate is hurt “a great deal,” while 34% say it is hurt a “moderate amount.” Investors are also coming to believe that the current rise in gas prices represents a more permanent trend, 71% of investors believe the rising prices are part of a permanent trend, compared with 56% in May of 2004.

At the time of the survey, the average price of gas experienced by investors was US$2.99 a gallon. Investors expect that three months from now, the average price will be US$3.09.

Investors say the impact of higher energy prices has been felt personally as well as in the markets. 51% say they have suffered financial hardship this year because of the price increases, compared with US$42 in August 2004. 78% say they have curtailed spending in at least one of four areas as a direct consequence of higher energy prices: 66% curtailed their driving, 57% cut back on general spending, 49% cut back on vacation, and 31% reduced their use of fans and air conditioners.

This month’s survey also showed a significant drop in the percentage of investors who think now is a good time to invest in the financial markets, from 59% who felt that way last month to 51% now. The last time investors were this pessimistic was in March 2003. Other issues weighing on investors’ minds are concerns about economic growth and inflation.

The survey was conducted September 1 to 18. The sample included 802 investors randomly selected from across the country. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of US$10,000 or more. The sampling error in the results is plus or minus four percentage points.