India has been rated as the second most largest foreign investor in the UK by consultancy firm Ernst and Young, acknowledging India Inc's growing competitiveness and willingness to take up global challenges.

E&Y in its latest European Investment Monitor has rated India as the second largest investor in the UK, behind the US, which maintained its predominance as the single largest investor in Europe.

Overall Indian investments into Europe increased by 66 per cent, E&Y said.

"Indian companies are winning clients from Western European competitors by investing in sales and customer support offices and also software development centres close to their European customers as a means to drive growth," E&Y Regional Development Director Nigel Wilcock said in a statement.

The investment monitor revealed that UK is still the most attractive investment destination in Europe with a 23 per cent increase in the number of projects announced in 2006. The number of projects during 2006 increased to 686 from to 559 in 2005.

The report shows that overall Europe continues to improve its amount of inward investment, with projects up by over 15 per cent from 3,066 in 2005 to 3,531 in 2006, with Western European countries being the principal beneficiaries.

Germany, Spain, Switzerland and Italy all showed a substantial growth in investment levels. Despite having previously threatened to overtake the UK as the most popular destination in Europe, investment to France grew modestly in 2006 with its overall share declining, it said.

"The rise in Western Europe has been driven by an increase in investment projects from the US into Europe -- up 22 per cent from 813 in 2005 to 990 in 2006 -- as well as a major hike in the number of projects originating from the UK, Switzerland and India," Wilcock said.

Germany, the second most active country in terms of investment origin, is increasingly focused on Eastern Europe, he added.

Despite falling levels of investment to the UK and the rest of Europe by the US, it is still the single largest source of investments in Europe. US investment to the UK and Europe declined to 30 per cent of overall projects in 2006 from close to 50 per cent in 2000, the consultancy firm said.

Investments to Eastern European countries like Poland, Hungary, Russia and the Czech Republic declined in 2006.

However, investments in Romania, which has been admitted to the European Union in this year, attracted 140 projects in 2006, which grew from only 18 projects in 1997. It was ranked seventh in the overall European list.

"Manufacturing had a tough year across Europe in terms of new investment projects being announced. Whether or not this is the beginning of a long-term slow down in Central and Eastern European investment activity in manufacturing remains to be seen. But companies seeking a lower cost base do now appear to more likely to consider China and India as well other Asian hot spots," Wilcock said.