Despite the recent rally, the shares remain 7 per cent below their levels prior to attacks - a poor performance compared with other leading markets in Asia, such as Hong Kong, whose benchmark Hang Seng Index is now up about 9 per cent from its level on September 11.

On Tuesday (Nov 20), Singapore's benchmark Straits Times Index ended down 5.38 points, or 0.37 per cent, at 1,446.82. The decline capped gains in the index of more than 5 per cent since November 9.

Part of the reason for the sluggish recovery is that Singapore's economy has borne the brunt of the slowdown in US demand for Asian exports. Singapore's exports, including deliveries originating in third countries, are equivalent to about 150 per cent of its gross domestic product, with a large proportion of these coming from the depressed technology sector.

The island state's GDP contracted 5.6 per cent year-on-year in the third quarter, making it the second quarter of negative growth. The government expects the economy to contract 3.0 per cent this year, compared with growth of 9.9 per cent last year.

Economists say the slowdown is likely to become protracted because of what they argue is an inadequate monetary policy response by the government. Singapore controls monetary policy mostly through the exchange rate. So far it has failed to allow a significant weakening of Singapore dollar to help stimulate growth.

"We stress the need to ease all elements of the fiscal/monetary policy mix, which we expect will remain too restrictive," said Goldman Sachs.

There has also been concern in the stock market that Beijing's accession to the World Trade Organisation could add competition to Singapore's technology manufacturing industry," SG Securities' Mr Julienne said.

However, over the past two weeks, victories by the US-backed Northern Alliance in Afghanistan have helped lift the mood among investors. They hope a fast conclusion to the war might spur an early global economic recovery.

"The situation in Afghanistan has improved enough to encourage investors to take another look at Singapore's fundamentals. This part of world is very much under-owned and geared to a US recovery," said Marc Julienne, director of sales trading at SG Securities in Singapore.

Mr Julienne said that despite profit-taking on Tuesday, the market could continue to rise through to the end of the year as fund managers reduced some of their cash holdings.

"There is a lot of money out there still sidelined. Defensive players had been betting on things getting worse and worse but it's not really happening," Mr Julienne said.

Technology stocks led declines on Tuesday, with Singapore's leading chipmaker Chartered Semiconductor, ending down 3.6 per cent at S$4.18 per share while Creative Technology, the world's largest PC soundcard maker, dropped 3.47 per cent to S$13.90 per share.