ANALYSIS - Champagne finish or cold turkey for U.S. stocks?

By Edward Krudy

NEW YORK (Reuters) - Savvy equity investors have fattened their returns this year, buying on pullbacks during the U.S. market's rally, and that activity may be enough to buoy prices through the end of the year.

The much-vaunted tactic of "buying the dips," which failed miserably in 2007 and 2008, has been a winning strategy since stocks rallied 60 percent from March.

Investors who missed out on part of the rally used pullbacks as a chance to get into the market. There may be enough interest from fund managers, struggling to beat their benchmark index, to keep stocks afloat through the historically strong month of December.

"The reality is that all of the cash on the sidelines that is earning zero in interest makes those pullbacks shallow and short-lived," said Henry Smith, chief investment officer at Haverford Trust Co in Philadelphia.

Smith said the tail winds boosting equities - low interest rates, government stimulus spending, improving corporate earnings and a synchronized global recovery - were outweighing headwinds and would continue to do so in the near future.

Equity markets have been in a sweet spot for much of this year. Low interest rates have not only provided a source of cheap funds but are encouraging bolder investors out of money market funds and into riskier, higher-yielding assets like stocks.

Since the beginning of the year about $554 billion has left money-market funds, according to the Investment Company Institute. The $3.3 trillion still left there earning close to nothing is still around $179 billion more than at the start of 2008.

"The majority of fund managers are still lagging the index, so I don't think there are a lot of fund managers going and sitting on the beach as we move into the end of the year," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.