TORONTO (Reuters) - Tighter credit conditions and the fallout from the US mortgage crisis have clouded the picture for Toronto stocks in the new year, but some say the market has already priced in most of the bad news and could be poised for another positive year in 2008.

The S&P/TSX composite index , which fell 0.6 percent this week, will almost certainty finish 2007 with its fifth straight yearly gain. This is despite heavy selling since July that has continued during the normally strong November-December period.

While this doesn't bode well for the market's direction early next year, some see a silver lining in the depth of the recent slide.

"In many cases, they're throwing the baby out with the bathwater," said Irwin Michael, portfolio manager at ABC Funds.

"People get nervous in the market and sell their good stocks along with the bad."

"You've got the lingering concerns of asset-backed commercial paper in Canada, and also (the US) subprime market and how that's affecting Canadian banks. Until that is resolved...that will continue to hamper the market."

But assuming the US economy doesn't fall into recession and drag Canada's economy with it, bargain-hunters should have plenty of targets, analysts say.

"If we can get through the first half of the year and come out into the second half of the year with a more optimistic economic environment, we may see an even (year) to a slightly positive year," said Michael Sprung, president of Sprung and Co. Investment Counsel.

It might seem odd to predict continued market gains given the fact that the market's five-year bull run has already exceeded the normal thinking about bull and bear market cycles.

Add to this the threat of a flood of mortgage foreclosures that could cripple the US economy and a crisis of confidence in credit markets that is raising the cost of money for both corporations and consumers, and one might expect a situation toxic to stockholders.

But analysts say Canada's strong economic fundamentals, coupled with the country's decreasing dependency on the United States, and the prospect of further interest rate cuts and other liquidity-providing measures, may end up calming the turmoil.