Sales of equity mutual funds plunged 78% from a year earlier in December, capping a disappointing 1998.

Companies that have been counting on brisk sales of stock funds should watch the situation closely, an industry expert said.

"Were the trend to continue, it would be a matter of some serious concern," said James Overholt, a consultant with Milliman & Robertson Inc. in Chicago.

December's net sales of equity funds totaled $3.4 billion, down from $15.6 billion a year earlier, according to the Investment Company Institute, the mutual fund industry trade group.

Full-year net sales were down about 30%, to $159 billion. That included a $12 billion net outflow in August as the stock market swooned.

Net sales fell short of year-earlier levels in each of the last six months of 1998.

The slackening in demand for stocks and stock funds-which are more profitable than bond funds both for their manufacturers and distributors- has already contributed to layoffs at some brokerages.

BankAmerica Corp. announced in December that it would trim its brokerage operations by a third in the first quarter, for example.

Mutual fund executives acknowledge that 1998 was a difficult year, but some are predicting a rebound.

"We're off to a fast start," said Michael Vessels, the head of bank distribution at AIM Management Group. He said investor sentiment was swinging "back to equities."

Stock market turmoil prompted several big brokerage firms like Merrill Lynch & Co. to pare their sales forces last year. Continued sluggishness in the market might result in layoffs at the biggest bank brokerages and those with independent brokerage subsidiaries, Mr. Overholt said.

But smaller banks' sales forces are fairly lean and their conservative sales approach should insulate them more from downsizing, he said.

While investors cooled to stock funds last year, they stepped up their bond fund investments by more then 60%, to $74.4 billion, according to the Investment Company Institute.

That may suggest that investors are looking to rebalance their portfolios with bond funds after the stock market run-up of the last few years tilted their assets too far toward equities, said Ed Hipp, the head of the retail brokerage at Centura Bancorp of Rocky Mount, N.C.

He said it's too early to declare that investors have really turned against stock funds.

"I don't think it's a preordained trend," he said.

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