The UBS/Gallup Index of Investor Optimism is up four points in July, suggesting that investor sentiment is continuing to recover.

Last February, the index hit a six-month high of 82, but then slid 32 points over the next four months. It now sits back up at 58. UBS says that the most recent figures suggest the decline has probably bottomed out and started to correct. “Despite the rise in energy prices and investors’ continued related concerns, it is significant that the index still managed to post a second straight, albeit modest, gain in July, said Maury Harris, UBS chief US economist, in a release.

The price of energy remains investors’ biggest concern, cited by 71% as hurting the investment climate “a lot,” followed by the outsourcing of jobs to foreign countries (61%), and the federal budget deficit (51 %).

Also, identity theft ranks among the significant issues hurting the economy, it notes. Forty-four per cent of investors reported that the fear of identity theft hurts the investment climate “a lot,” just behind Iraq (46%), but ahead of questionable accounting practices (42%), illegal immigration (39%), and the threat of more terrorist attacks (36%). Other issues hurting the investment climate include the cost of housing (31%), inflation (28%), the value of the dollar (25%) and interest rates (17%).

Although optimism has increased slightly, investors do not project a significantly larger rate of return on their portfolio this month than they have for the past several months. Currently, the expected rate of return is 9.8%, little different from the 10.0% average of the past six months.

This month investors were surveyed about the impact of interest rates, which ranked least harmful to the investment climate among the 12 factors measured. More investors say the current level of interest rates has helped the economy than hurt it.

As for the recent changes in interest rates, most investors (63%), discount any impact on their portfolios. The rest of investors are about evenly divided as to whether the recent changes have hurt the investment climate (20%) or helped it (16%). And, 77% say the recent changes in interest rates have not affected their decisions about whether to invest more money or less money in stocks. The changes have encouraged 17% of investors to invest less in stocks and 6% to invest more.

The index survey was conducted July 1 to July 17. 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.