A sharp drop in concerns about energy prices pushed investor optimism in August to 74, the highest level in the five previous months, according to the UBS/Gallup index of investor optimism. The level is 21 points higher than a year earlier: it reached a 53-point low in August 2005.

Investors who believe energy prices are hurting the investment climate "a lot" dropped from 78% in August to 63% in September. This is the lowest level of investor concern about energy costs since February 2005 when 56% held this view, UBS and Gallup report. About 80% felt this way in October 2005, which is when both oil and natural gas prices were pushed up by Gulf of Mexico hurricane damage to production and other facilities.

This past August, investors expected the average price of a gallon of regular gasoline to reach $3.30 in the next three months; in September, the forecast was a much lower $2.76.

Mike Ryan, head of UBS' wealth management research, Americas, says, "This sharp rise in optimism demonstrates the significant degree to which high energy prices affect investor sentiment-both with regard to the potential impact upon growth as well as the threat of higher inflation. We therefore expect that lower energy prices will also positively influence consumer confidence in the future."

Investors appear to believe that the U.S. economy is headed towards a "soft landing," UBS and Gallup report. About 51% of investors in September described current economic conditions as showing signs of an economic slowdown, while 38% say the economy is experiencing a recovery or an economic expansion. About 10% believe the economy is in a recession.

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