On a trade-weighted basis, the dollar has lost about 10 per cent of its value in the last year and about 25 per cent since the start of 2002.

Standard Life Investments' views are expressed in a report it issued weighing the implications of the U.S. presidential election for the dollar and the equity and bond markets.

"With regard to the equity market, investors should scrutinise the defence, retail, energy and especially health sectors," said Andrew Milligan, head of global strategy at Standard Life Investments.

"It is clear that a Kerry win would be significant for defence stocks," said Milligan. "Kerry plans to cut certain areas of defence spending, especially the U.S. missile defence shield, where expenditure has doubled under the Bush administration.

"Stocks in the retail sector have also enjoyed a fillip since Bush cut income tax by around 10 per cent and sharply lowered the top rate on dividends. A policy reversal would be important for stocks of luxury goods and higher-end retailers."

HEALTHCARE BATTLEGROUND

Milligan said a Bush victory could also be positive for oil stocks if it heralded a "more favourable regulatory environment" for drilling in environmentally sensitive areas.

Conversely, Milligan said a victorious Kerry would push for less dependence on imported oil and might seek increased energy conservation, tax credits for solar and wind power, and tax incentives for more fuel-efficient cars.

"Healthcare will be a key battleground," said Milligan. "Bush has advocated a system of refundable tax credits that would enable low earners to buy health insurance.

"Kerry has proposed the government pays more of the cost of treatment, and broadening out the availability of health care coverage for children."

Milligan said pharmaceutical companies could be affected by Kerry's proposals to reduce prescription drug prices through more imports and generic drugs.

Standard Life Investments expects "a moderate depreciation of the U.S. dollar into 2005" but said any changes to U.S. fiscal or trade policy "could have material implications for the U.S. currency over the next administration."

Milligan said "a renewed policy of benign neglect" to enable a depreciation of the dollar was possible.

In a telephone interview, Milligan added: "Investors do need to realise that if the U.S. economy and markets feel under pressure, a solution would be a further and major depreciation of the dollar.

"There is a lot of pessimism around about the prospects for the U.S. There are a lot of risks and threats to the U.S. but they do still have an important card to play - and that's the dollar."