MANILA, Philippines?Share prices fell sharply on Tuesday as investors took advantage of the doldrums in US stocks to lock in gains in the local market.

The Philippine Stock Exchange composite index dropped by 3.8 percent to close at 2,514.17. Counters slumped across the board, with the property, services and mining sectors being the worst hit.

The local bourse was led down by Philippine Long Distance Telephone Co., Globe Telecom, Megaworld Corp., Banco de Oro Unibank and Energy Development Corp.

Manila Electric Co. stocks fell sharply by 9 percent to close at P140 per share. Shares of the country?s largest power retailer soared in previous days on expectations that PLDT would buy out San Miguel Corp.?s 27-percent stake at a hefty premium.

While the fall in US stocks fueled yesterday?s decline, it?s really part of the ?big cycle,? which may not be the major pullback that the market was awaiting after months of unabated climb, said Joseph Roxas of local brokerage Eagle Equities Inc.

?I think it has room to rally a little more from here to close higher due to window-dressing at the close of the first semester,? Roxas said.

Roxas said the index might still retest 2,600. But he sees a major correction toward 2,100 through October.

He noted that local stocks had hit bottom in October last year.

But the pullback on Tuesday was welcomed by the local financial markets given that equity prices were believed to be soaring too high relative to expected earnings.

?This correction is very healthy. At the rate it?s going, we?re building a bubble,? said Jose Mari Lacson of Campos Lanuza & Co. ?It?s becoming very difficult to justify valuations already.?

Despite the impetus provided by a fresh cut in local central bank interest rates, Lacson said the average prices of local equities had already breached the target of most analysts relative to earning potential.

Lacson added that the selldown Tuesday may also be partially due to some shift in investors? interest to attractive fixed-income instruments such as retail bonds.

Retail tycoon Henry Sy?s SM Investments Corp. recently raised P10 billion from an inaugural retail bond offer, which was warmly received by the domestic market.