As long as investors maintain a strict focus on US domestic stocks, they won't go far wrong, even in light of the prolonged effects of the South East Asian crisis, says Katherine Garrett-Cox, head of US equities at Hill Samuel in London.

People are going to be looking at quality and safety and liquidity and I think you have all three things working for you in the US stock market next year," she says. "I think that you have basically got the prospect of some very large companies that are easily tradable doing well and as long you stick for the most to companies which are domestically oriented in their earnings, then you are going to mitigate some of the current impacts that you are seeing around the rest of the world." She sees certain parts of the small caps sector as having a "reasonable year", and is keeping her eye on financials in midst of all the restructuring and consolidation of the industry.

However, the Asian situation is still a concern and analysts are still unsure as to what extent it will impact on US corporate profitability. Garrett-Cox is looking for 8% in earnings growth, but that figure will be put at risk should the Asian repercussions continue over a longer time period.

"You can't expect much in terms of dividends, but I think the market should rise broadly speaking in line with earnings growth so if earnings are going to be about 8-10%, then we could get another 8-10% from the US stock market," she adds.

"The big wild card is earnings growth" agrees Paul Morris, head of US equities at Schroders in New York, though his estimates are in a significantly lower bracket. "We give a wide range of anywhere from 0-5% earnings growth and therefore would mark to market that also.

"There are really three variables - earnings growth, inflation rates and valuation levels. We see a deceleration in earnings growth from the double digit levels we are at now and I think that's the biggest variable." He supports Garrett-Cox on recommending financials, and adds consumer cyclicals to those sectors to watch out for, the lesser attractive stocks being basic materials, utilities and technology.

Jacques Bachetta, head strategist at Pictet & Cie in Geneva, views the Japanese government's economic programme as by far the most influential factor, not just on the US market but on those world-wide. And despite previous attempts by the government to avoid further disaster in the world markets, biting the bullet and enforcing substantial changes seems the only way ahead.

"If the Japanese government takes steps to help solve the problem of the financial sector, and secondly if they also take measures to be sure to prop up their internal demand being either a cut of direct taxes or budget spending, I think that the prospects for this year in general world growth will be quite different than last year," he says.

In the first case scenario that Japan takes positive action he sees the prospects for US stocks as "not too bad", though bond markets world-wide are likely to suffer as a consequence. But if Japan holds tight and fails to make any moves, Bachetta says, the prospects for world growth will be "much weaker" transforming the US bond market into "a bit of a last refuge".

Looking at bonds, the general outlook is fairly good. "On the interest rate front, we see a fairly benign environment," says Morris. "We don't see any tightening at this point, particularly with some of the growth taken out by the South East Asia crisis. So that's good."

"You've got a relatively well-supported market," adds Garrett-Cox. "You've got a very positive economic scenario stacking up - the growth is basically good, inflation is benign, and it's highly unlikely that the Feds will move on interest rates."

She concludes: "I think the outlook for both bonds and stocks are pretty good."

Rachel Oliver"