Seoul stocks are expected to keep up their record-high prices because of steady flows of fresh retail money into equitytype funds, a recovering domestic demand and still-attractive valuations, a Lehman Brothers' report said. The benchmark Korea Composite Stock Price Index (KOSPI) has broken the 1,200- point mark for the first time ever and is set to extend its rally for a while, it said. "Local fund flows into equities and some positive signals for the recovery of domestic consumption and the economy will continue to boost local sentiment, while improved corporate profitability and management transparency will continue to support the KOSPI," Lehman analyst Park Jee-hoon said in a research note. Positive development of the six-party talks to disarm North Korea nuclear weapons may boost local sentiment as well, he added. Lehman expects the KOSPI to reach as high as 1,300-1,350 points by the end of the year, maintaining its positive view on the IT sector recovery for the second half. But he expressed concerns about downside risks such as a slowing U.S. and global economy in 2006 and a lagging negative impact on the local economy from the government's housing regulations. "The government's housing regulations might be positive for the equity market in the very near term, due to some funds flowing into equities from the property market," Yoon Yong-chul, another analyst at Lehman, said. Yoon forecast that the regulations would hurt the recovery of domestic demand and eventually the equity market on a more than three-month view. "The regulations are likely to increase the uncertainty of household cash flow and to reduce household spending, particularly in the upper income bracket," he said. Non-economic factors, including continued falling approval rates for the Korean president andthe ruling party, and the investigations of the slush funds of Samsung and Doosan Group look unfavorable to the market, but the influence on the equity market will be insignificant, he noted. "We expect domestic players such as banks and retailers will continue to perform well, and some exporters having secular growth in their global market share will continue to outperform," said Yoon.