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I've domain.com hosted in US for years. (PR6)
No connection with UK apart from natural incoming anchor text containing "UK + kw"
Domain.com is now ranking highly on "UK-only results" on G.co.uk
Until now, you either needed a .co.uk domain or UK hosting to be listed on "UK-only results"
However, the recent country targeting in the Webmaster Tools was set to "UK" about 2 months ago but I didn't spot the SERPs change until now.
Conclusion A: You can now host anywhere with any domain and will appear in Google's "country-only" SERPs within 6-8 weeks.
Case B - Separately but related I think:
A French travel co we know is currently doing a €25M French TV campaign & they now have a slight problem.....
They've 2 sites, domain.com (US version) & domaine.fr (French version)
Both established sites on same French IP.
Domain.com is PR6, Domaine.fr is PR5
Until the last few days, the default G.fr SERPs were showing the correct domaine.fr for the company's French name.
Now however, Domain.com is ranking 1st on G.fr when searching for the company's French name.
Again, this is brand new but there was no country-targeting in place on either of these sites.
Conclusion B: If you have several International sites ranking well in the local SERPs and you don't use Google's webmaster tools' country-targeting, you're going to get hurt.
As the above just came to light in the last few days, it would seem to be related to recent G SERP changes that some have seen.
I'm not sure that case B is really connected - it sounds more like a bug. If I undersand correctly, we're talikng about a French language site ranking as if it were in English, correct?
Not so sure about your conclusion though, the way I read it the domain/folder would need a specific geographic tie to the targeted country, and assuming that means more than simply adding a fake address, limits the tools' usage.
Haven't found much official detail on this from G, but there's a post from a Googler in the blog entry announcing the tool and she specifically mentions it's for "geographic data", I'll see if I can dig it up....
It was Susan Moskwa on Dec.12th.....