Global foreign direct investment (FDI) inflows grew in 2006 for the third consecutive year to reach 1.2 trillion U.S. dollars, the UN trade and development agency said on Tuesday.

The total is a 34 percent increase from 2005, although still short of the record of 1.4 trillion U.S. dollars set in 2000, the U.N. Conference on Trade and Development (UNCTAD) said in a statement.

According to the agency, the continued rise in FDI largely reflects high economic growth and strong economic performance in many parts of the world, including both developed and developing countries.

Increased corporate profits and resulting higher stock prices have boosted the value of the cross-border mergers and acquisitions that constitute a large share of FDI flows, the agency said.

Continued liberalization of investment policies and trade regimes added further stimulus, although in some countries in Africa and Latin America there were some notable changes in economic policy toward a greater role for the state, it said.

FDI flows to developed countries rose by 48 percent to 800 billion U.S. dollars in 2006, well over the levels of the previous two years.

The United States recovered its position as the largest single host country for FDI in the world, overtaking Britain, the top FDI recipient in 2005.

The European Union as a whole continued to be the largest host region, accounting for 45 percent of total FDI inflows in 2006.

FDI inflows to developing countries and economies in transition(the latter comprising South-East Europe and the Commonwealth of Independent States (CIS)) rose by 10 percent and 56 percent, respectively, in 2006, and reached record levels for both groups of economies.

FDI inflows to South, East and South-East Asia, and Oceania maintained their upward trend in 2006, reaching a new high of 187 billion U.S. dollars, an increase of 13 percent over 2005. China, Hong Kong (China) and Singapore retained their positions as the three largest recipients of FDI in the region.

In Africa, FDI inflows in 2006 exceeded their previous record level of 2005. High prices and buoyant global demand for commodities were once again a key factor, particularly in the oil industry, which attracted investment not only from developed countries but also from some developing countries.

The UNCTAD said that economic growth in 2007 was projected to slow moderately.

Continuing global external imbalances, sharp exchange rate fluctuations, rising interest rates, and increasing inflationary pressures, as well as high and volatile commodity prices, pose risks that may also hinder global FDI flows and could lead to a slowdown in the fast growth in global FDI registered over the past few years.