BlackRock, one of the biggest international fund houses worldwide with $1.4 trillion in assets under management, isnÆt taking any unnecessary chances on the US economy.

ôThe US economy still appears fragile and is facing some downside risks,ö says Bob Doll, US-based CIO for global equities at BlackRock, where he is personally responsible for $40 billion in assets. Combined, the equities team at BlackRock manages around $290 billion worldwide.

The US housing market remains a source of significant weakness, Doll says, noting that housing starts, building permits and new and existing home sales are all declining according to the latest data. Consumer confidence also has continued to weaken and the labour market has remained under pressure, he points out.

At best, BlackRock is ôcautiously optimisticö on global equities, Doll says. Those two words usually reflect a lack of commitment to a firm call on the market, but this is one of those times when the sentiment may be justified.

After all, Doll notes that while the data out of the US continues to paint a negative backdrop, the economy is nevertheless still growing.

ôThere are silver linings in the economic outlook,ö Doll says. ôLabour productivity, manufacturing and industrial production data have been rebounding and exports remain an important source of strength. The non-financial corporate sector has also continued to perform well.ö

While still sifting through the pros and cons of the future of the US economy, thereÆs one thing Doll points out with conviction: that the fall in equities markets globally in mid-March could very well have been a market bottom.

ôThe current economic backdrop should provide a basis for stock prices to grind higher, but not without continued volatility,ö Doll says.

Overall, BlackRock believes markets are ôslowly but surely regaining their footingö and that the ôcresting of financial tensionsö has set the stage for improved market conditions in the months to come.

ôOur interest these days are in more defensive, less cyclical markets such as the United States and Japan,ö Doll says.

Sector-wise, BlackRock is overweight in information technology, healthcare, and energy. It is underweight in utilities, financials, and consumer discretionaries.

BlackRock doesnÆt believe that the US economy is headed for recession.

ôThe problem with the recession argument this time is that, outside of the housing and credit markets, excesses in the United States have largely been absent,ö Doll says. ôA recession connotes more than just a contraction in gross domestic product; it also entails patterns of economic behaviour such as spikes in unemployment and collapsing profit margins, neither of which we have seen.ö

Despite the rising oil price û now at more than $120 per barrel û BlackRock sees no evidence of a significant spill over into consumer and producer prices.

ôWe expect inflationary pressures in the United States to diminish in the months ahead, particularly since the credit squeeze and housing bust are both deflationary forces, and since the economy continues to operate below potential,ö Doll says.

The US Federal Reserve, meanwhile, will likely keep its key federal funds target rate steady at 2% for an indefinite period, after cutting seven straight times since September 2007, Doll says.

Fund flows worldwide have generally been subdued as investors have shifted their attention to the coming Federal Open Market Committee meeting on June 24-25.