The slide in share prices since the World Trade Center disaster is likely to hang over the US stock market until at least the end of this year, according to Wall Street economists and market analysts.

Some market watchers said the terrorist attacks, while prompting deep emotional shock, should cause only short-term damage to the US economy and corporate profits.

And if the Federal Reserve and other central banks move more aggressively to cut interest rates, the economy and the markets could see a sharper rebound next year, albeit from a lower point.

The Dow Jones Industrial Average plunged 14.3 per cent last week, its biggest weekly decline since 1933, when US markets reopened after the September 11 attacks. The volatility stemming from the attacks also showed signs of spreading further in European markets late last week.

The short-term impact from the attacks is likely to be harsh. The economy could contract at an annualised rate of as much as 3 per cent during the third quarter, said John Lipsky, chief economist at JP Morgan Chase - though he added that this was not an official forecast, given the lack of data since the disaster.

The collapse in US corporate profits that was already under way will also be exaggerated by the immediate effects of the disaster on third-quarter results, said David Bowers, chief global equity strategist at Merrill Lynch.

However, Wall Street analysts and corporate executives said these immediate effects could be short-lived and that a more important issue was the economic slowdown in progress before the disaster.

Jeffrey Immelt, who took over from Jack Welch as chairman and chief executive of GE four days before the disaster, said the company was facing a slowing economy before September 11. "The economy that we are thinking about today, we have been wrestling with for the last 12 months. We saw slowdowns in airline spending nine months ago," he told analysts on Friday.

GE's insurance, television and aircraft engine and leasing businesses would be affected in the aftermath of the attacks, but he said he expected long-cycle businesses, such as medical systems, power systems and most of GE's financial services activities to hold up well.

The attack was only likely to have a longer-term impact if it dented consumer confidence, Wall Street economists said. Typically, consumers cut back on spending only when job losses mount.

"Within a few weeks, we should be getting some idea of whether the attack is translating into new job losses," said Mr Lipsky.

While waiting for evidence of how the US economy was responding and the effects of possible US retaliation, investors were likely to remain cautious, analysts said. This has already led to a jump in the risk premium on equities, or the extra return that shareholders demand for owning stocks, said Mr Bowers. "The market has priced in a lot of bad news," he said.

Doug Cliggott, equity strategist at JP Morgan, said last week that the effects of the aviation crisis would go far beyond just the airlines, but that it was difficult to come up with reliable forecasts for earnings in other sectors.

The financial markets have yet to respond to signs that central banks in the US and elsewhere are prepared to cut interest rates to prevent the disaster having a deeper impact on the economy, some economists said.

Also, the fact that the Fed had moved to cut short-term interest rates by 50 basis points rather than 25 pointed to afar more aggressive approach than in the past, said Mr Lipsky.