The recent turbulence on world stock markets put paid to any hopes harboured by private investors that the new year would bring some much-needed stability to equities.

Those who postponed investment decisions in 2000 in the expectation that a clearer picture might emerge in 2001 may find that it takes some time before the water clears following recent market volatility.

"I have rarely seen it so confusing," said one Dublin-based stockbroker. However, brokers and advisers believe there are opportunities for the retail investor with money to spend, although they urge private clients to proceed with caution. Last week's decision by the US Federal Reserve to cut US interest rates means that investors are now likely to be operating in an environment of declining rates, which has implications for investment decisions.

The surprise cut suggests that the US central bank will move aggressively to protect economic growth, bringing back into focus some of the growth stocks that fell from favour last year as the market fretted about an economic downturn in the US.

The rate cut has already spurred buying of such shares, including those in the technology, media and telecoms (TMT) sector, and many analysts believe it may mark the start of a rotation out of defensive stocks, which are generally insulated against economic circumstances, such as food and pharmaceutical firms.

In a recent note to clients, London-based HSBC said it had reduced its exposure to defensives, which it believes are looking expensive, while it has raised exposure to growth. However, the process is expected to be gradual, with portfolio managers still wary of earnings warnings and disappointments from growth companies, particularly technology firms.

"People are going to start dipping their toe in the water in technology," said one London based fund manager.

While global fund managers are testing the waters in a sector that took quite a battering last year, what should the retail investor do?

Despite the turn in the US interest rate cycle, most analysts believe markets are set to remain volatile over the coming months, particularly as more bad economic news is expected out of the US.

While falling interest rates should help stabilise markets eventually, they are likely to remain choppy until there is greater clarity on the extent of the slowdown in profit growth.

Analysts believe it could be the second half of the year before stock markets start to perform well again.

Most of the advice from Irish brokers to the private client amid the uncertainty tends toward the cautious.

Tried and tested blue-chip stocks are favoured while many brokers believe the small investor should also stay close to home, investing mainly in Irish and European equities which involve no currency risk.

"We are advising people to stick with blue-chip old economy stocks and a little bit of technology," says Mr Eamon Leonard of BCP Stockbrokers. "We are also suggesting that they hold 20 to 30 per cent of their portfolios in cash and property."

Among the stocks he suggests investors consider are those in the broad-based S&P 500 index of leading US shares, the top European shares contained in the Eurostoxx 50 index, and the big Irish stocks like AIB, Bank of Ireland, CRH and Kerry.

While BCP believes private investors should hold some technology shares in their portfolios, Mr Leonard recommends that they stick to well-known names such as Nokia and Intel.

Europe remains a favoured region with many financial advisers, who believe it offers the Irish investor exposure to world-class companies without having to assume significant currency risk.

They advise private investors to think long and hard before assuming currency risk on top of the uncertainties already involved in equity investment, particularly as many economists believe the dollar is set to weaken further in the weeks and months ahead as further US rate cuts follow last week's credit easing.

Among the key European stocks worth watching are Dutch electronics group Philips, technology firms like Nokia, Ericsson and Alcatel, food groups such as French company Danone and insurers like Allianz, Axa and Fortis.

Meanwhile, financial stocks typically do well as rates decline because the trend lowers their main operating cost - what they pay for the cash they lend or manage - and that boosts profits. However, analysts advise that investors proceed with caution as financial shares have already rallied in anticipation of lower interest rates this year.

Investing locally also allows investors to avoid currency speculation, and brokers advise clients not to entirely shun the value on offer from some of the solid but lowly rated second-line Irish industrial stocks.

"Don't ignore what's on your doorstep," says Mr Greg Dilger of the private client division at NCB Stockbrokers. "There are a lot of respectable companies which go about their business pretty well."

While firms such as Barlo, Heiton, Jurys Doyle and McInerney may not be in vogue, their low valuations are in part due to the technical situation overhanging the Irish market, which has seen fund managers move out of Irish equities into euro zone shares.

Analysts say that just as the wheel has turned full circle with Internet stocks, last year's craze but now firmly out of fashion, old-economy Irish industrial stocks may once again become popular.

In the meantime, some could become takeover targets or candidates for management buyouts. Such stocks may also offer an income dimension with high dividend yields which in some cases return more than cash on deposit.