By Michael J. Martinez
The Associated Press

NEW YORK - With U.S. stock markets just about unchanged for the first quarter of 2004, equity mutual funds followed suit with minimal gains, according to final quarterly figures released Friday by fund watcher Lipper & Co.

The high-flying rally of 2003 continued into January of this year. But declines in February and March damaged mutual-fund returns for the quarter. The best-returning funds came in traditional bear market investments such as real estate and international stocks.

U.S. diversified equity funds - the large baskets of stocks that most mutual fund investors hold - had a 2.98 percent return, on average, for the quarter. Funds holding predominantly smaller companies fared best, with small-cap value funds boasting a 6.13 percent return.

Individual sector funds - which track specific industries - posted an average 5.09 percent return. Real estate funds, always a mainstay of conservative investing, boasted an 11.91 percent average return.

International funds also fared well, averaging a 5.13 percent return. Japanese funds had a 13.82 percent return in the quarter, boosted by improvements in the world's second-largest economy. Pacific region funds had a 10.50 percent average return.

The international fund American Funds EuroPacific Grade A had a 6.79 percent return for the quarter. The worst of the top 25, the Nasdaq-100 Trust 1, posted a negative 2 percent return.

Lipper issued its preliminary figures March 26. Aside from minimal additional gains for the majority of funds, the results were unchanged.