By Amy Baldwin
The Associated Press

NEW YORK - Stock mutual funds ended a brutal 2002 with a third straight year of declines - losses that spread across categories and socked more than nine out of every 10 funds.

Funds overall showed some signs of a turnaround in the fourth quarter, but that wasn't enough to keep most types from posting double-digit drops for the year.

Just a handful of fund categories recorded positive returns in 2002, according to data from Lipper Inc., a New York-based firm that tracks funds. The firm also found that 96 percent of all individual funds ended the year with losses.

Such poor fund performance has made Lipper cautious about the year ahead. The firm thinks the stock market and stock funds will break their three-year losing stretch but with modest gains of less than 10 percent, said Don Cassidy, senior research analyst at Lipper.

"We don't think 2003 will be another down year. On the other hand, we don't think it will be wonderful and exciting on the upside," Mr. Cassidy said.

Of the 41 equity fund categories that Lipper follows, three ended the year with positive returns: gold funds with a positive return of 63.3 percent; specialty diversified funds, which use techniques that work well in a bear market and posted a positive return of 10.2 percent; and real estate funds with a positive return of 4.2 percent.

But the fourth quarter was strong for funds, with nearly every category registering positive returns.

Still, two of the biggest winners in the fourth quarter, telecommunications funds and technology funds, were also last year's biggest losers. For the quarter, telecom funds had a positive return of 23.6 percent, but for the year they had a negative return of 41.3 percent. Tech funds had a quarterly return of 17.6 percent but suffered a negative return of 43 percent for the year.

The stock market's downturn in the final two weeks of 2002 - Wall Street didn't have its usual Santa Claus rally - reduced the fourth-quarter gains and added to funds' declines for the year.