MANILA, Philippines--Online broker Citiseconline.com remains bullish on the stock market despite current volatility, saying the index may hit as high as 2,900.

"2,630 is a major resistance. Markets are still shaky. We may expect some roughness where we are now," Citiseconline.com vice president Juanis Barredo said during the launch of COL Easy Investment Program last Friday.

In a separate market strategy report, CitisecOnline said what would be positive for the market was the fact that stock prices look "compelling," with listed firms in a better position to face the present economic crisis.

Volatility, however, will come from the increasing likelihood of negative earnings and the uncertainty on when inflation or the rise in prices of goods and services, will peak.

"We think a disciplined approach and accumulating deep value stocks and quality stocks trading at compelling valuations will be a more rewarding strategy," CitisecOnline said.

It defined quality stocks as those that belong to sectors that are likely to grow in tandem with the economy, have neutral to attractive competitive structures, strong management teams with a positive track record, a competitive advantage and possess stable earnings, cash flow and strong balance sheets.

Quality stocks the broker likes are Bank of the Philippine Islands, Jollibee Foods Corp., Ayala Land Inc. and SM Prime Holdings. It also likes Manila Water Co. and Philippine Long Distance Telephone Co. but advises investors to wait for prices to correct further before accumulating due to inflation concerns.

The brokerage said inflation started creeping up in February and accelerated to 11.4 percent in June.

"We think investors have reason to be concerned with high inflation given its negative impact on consumer spending and corporate margins and heightened interest rate risk and regulatory risk," the broker said.

CitisecOnline noted that in the first quarter of 2008, gross profit margins of consumer companies such as Universal Robina Corp., which makes snack foods and beverages, and Jollibee Foods Corp., the country's biggest fast food chain, fell by 209 and 191 basis points, respectively, due to rising raw material costs.

CitisecOnline said it was likely that earnings of other corporations would be pounded by rising raw material costs.

Rising inflation is also stoking fears of rising interest rates.

The market expects interest rates to increase by another 50 basis points before the end of the year.

The broker also said there were market expectations that the government would increase borrowings to support higher subsidies and increased fiscal spending to offset slower economic growth.