Why are stocks continuing to decline, and when will they stop falling? BBC News Online assesses the outlook.

Why have shares continued to fall?

In short, because few too people are buying them.

Three years of falling share prices have taught investors that, however low stocks may have slumped, they could yet have further to fall.

And the uncertainty over war against Iraq, and rising oil prices, only give potential investors more reason to stay out of the market.

You mean shares could fall yet further?

It is possible.

Shares are still not unduly cheap by some measures, such as the so-called price/earnings (PE) ratio, which compares a firm's share price with its profits.

Alan Greenspan: "Irrational exuberance"

Historically, UK stocks have traded on an average PE ratio of about 12, and German shares at about 15.

Last year, even after many months of share slides, the ratio was about 12.3 for UK stocks and 17.6 for German equities - "hardly bargain basement" levels, investment bank Merrill Lynch says.

Certainly, factoring in future rises in company profits, and recent share falls, makes the ratio look more attractive.

But there is also the investor psychology factor to take into account.

Just as the share bubble of the late 1990s was fuelled by what US economic guru Alan Greenspan called "irrational exuberance", downturns can be deepened by undue pessimism.

Shares may spend ages in discount bins before investors have the courage to snap them up.

So I should cut my losses, and sell up?

Financial advisers were on Wednesday urging clients not to panic despite the latest crash.

Arguably this is your last chance to buy stocks at these levels - but people only ever see the catalyst with hindsight Nigel Cobby, JP Morgan

"This looks like the last bit of war nerves driving the market down," said Robert Guy, of Timothy James and Partners.

"The last thing you want to do is cash in your investments because then you won't be invested in the market when it does recover," said Nikki Foster, savings and investment manager at Chase de Vere.

Furthermore, shares at current prices are offering a generous yield compared with bonds which, seen as safer investments, have attracted a rash of share-wary investors.

In the UK, shares now offer more income than government bonds for the first time since 1959, JP Morgan has calculated.

Yet share prices have, historically, risen faster than bond prices.

So invest in shares now and, in the long-term, you have the chance to make good capital gains, and are sitting on decent dividend income while you wait, many advisers point out.

"Arguably this is your last chance to buy stocks at these levels - but people only ever see the catalyst with hindsight," JP Morgan's Nigel Cobby said.

So should I break open my piggy bank and snap up stocks?

Certainly, the current downturn is not bad news for everyone.

For example, someone aged, say, 30 starting to save for a pension now will get far more for their cash than they would have done four years ago.

So as long as share prices recover by the time of their retirement, they stand to reap a larger pension income at the end.

But there is always the chance that stocks will fall further.

If you do decide to invest, the advice from professionals is to spread your money - and risk - across a range of stocks.

Over the last two days, the halving in the price of Alstom and Corus shares shows the downside of picking a "dud" stock.

What other strategies have fund managers employed?

The strategy of many investors when the stock slide started was to seek refuge in so-called "defensives" - shares in firms whose earnings are relatively stable, boom or recession.

Our belief that more takeover activity will start to emerge is bearing fruit Framlington circular

These are typically those that feed ever-needed markets, such as healthcare, or ever-present vices, such as smoking.

Imperial Tobacco stock has been one of London's best performers in the last three years, although shares in drug firms, hit by fears over the loss of patents on key drugs, have disappointed.

Other investors have sought shares with large dividend yields, hoping these would underpin share prices, again with moderate success.

A newer tactic, espoused by firms such as Framlington, is to seek shares in firms likely, with their share prices low, to be taken over.

"Our belief that more takeover activity will start to emerge is bearing fruit," Framlington wrote in a circular to investors this week.

"In addition to the interest shown in Safeway and Six Continents, PizzaExpress has now agreed to a takeover."

But with shares in hundreds of firms to chose from, it is perhaps a tactic best left to the professionals.