LOCAL STOCKS ARE SEEN becoming increasingly vulnerable to profit-taking despite the rosy economic backdrop here and abroad, analysts said.

The main-share Philippine Stock Exchange index rose 2.41 percent last week to 2,850.01 after the Federal Reserve said the recession gripping the United States was easing.

?There are two bright spots in the fundamentalists? glasses today. First, inflation is at record lows. Second, this has pulled policy interest rates to similar levels as well. Furthermore, there are other bright spots developing. Most recently, although exports were reported to continue to slow, the pace at which it does has dissipated. Concerns on the budget gap for this year has largely been addressed with the successful bond float,? said Justino Calaycay Jr., a dealer at Accord Capital Equities.

He said corporate earnings did not look too bad as listed firms remained generally profitable and profit levels were ?a lot more hope-inducing? in the second quarter compared to the first.

?Yet, the charts suggests caution. Technicians are singing the correction chorus. Indeed, we are currently enjoying a 50-percent year-to-date gain, give or take. While such is evidence of the magnitude of the positive sentiment, it alternatively raises the flag with ?beware? boldly written on it. A decline of a big magnitude is not entirely discounted,? Calaycay said.

Calaycay added that the market could go either way but noted that the bias would be toward a downside in the near-term but over the medium- to long-term, the momentum was still favorable.

Banco de Oro Unibank chief strategist Jonathan Ravelas said last week?s close suggested a test of the 2,875 to 2,900 levels.

?However, trading volume shows the current rally is waning. This is supportive of a topping out market,? Ravelas said.

A clear break of 2,780 would suggest that a reversal was in place, Ravelas said. Doris C. Dumlao