STOCKS BOUNCE BACK : MUTUAL FUNDS END 3RD QUARTER ON A HIGH NOTE.

Byline: Chet Currier Associated Press 

After a rocky start, stock mutual funds came on strong in August and September to post healthy gains for the third quarter of 1996.

The average general stock fund climbed 2.61 percent in the period from June 30 to Sept. 30, the research firm of Lipper Analytical Services said Wednesday in its quarterly report on fund performance.

The average stock fund fell 6.08 percent in July as stocks ran into a severe but brief sell-off, but then rebounded 3.96 percent in August. It gained another 5.15 percent in September with the resurgence of leading stock indexes to new highs.

``The quarter was stronger than one would have thought,'' Michael Lipper, the Lipper firm's president, said in a news release. ``General equity funds are performing well above historic norms.''

Over the first nine months of 1996, he noted, the average stock fund is up 13.73 percent after an even stronger 1995. The average annual return over the last 35 years is a little less than 11 percent.

Midcap funds specializing in stocks of medium-sized market value led the broad categories of stock funds in the third quarter, returning 3.24 percent including assumed reinvestment of dividends, Lipper Analytical said.

Small company growth funds were the third-quarter laggards, with a gain of 1.75 percent. But they still head the list for the nine months, up 17.20 percent.

World equity funds, which trailed U.S. funds in 1994 and 1995, have been unable to keep up again this year. Their 0.73 percent loss in the third quarter left them with a 9.50 percent return for the year through Sept. 30.

Among specialized fund groups, financial services funds chalked up the best third-quarter showing, rising 7.64 percent, followed by real estate funds, up 5.75 percent, and science and technology funds, up 5.62 percent.

But none of those groups has yet caught up with natural resources funds, up 21.93 percent, in the nine-month standings.

Utility funds continue to bring up the rear, off 1.90 percent for the third quarter and up just 1.60 percent for the year to date.

The late-summer rally for the stock market and stock funds rewarded investors who rode out the July decline, or used that sell-off as an occasion to add to their holdings.

But analysts like Michael Lipper caution that bargain hunting of this sort may not always pay off so promptly.

As Lipper Analytical put it, ``the current economic expansion, as well as the ongoing bull market, are extended well beyond normal lengths and have to end at some point.''

CAPTION(S):

2 Charts

Chart: (1--Color) MUTUAL FUND, LEADERS AND LOSERS

(2--Co lor) Mutual funds: performance by specialty