HOW TO PLAY IT: Hunting for bargains as year ends

Dec 7 (Reuters) - 'Tis the season for calendar-based investing.

December, unlike the rest of the year, is a time when investors can count on a few things to happen: Fund managers begin to double up on the year's best stocks and many market players start to focus on booking tax gains and losses.

It can be a small break from the unpredictable flow of earnings and market momentum that dominate the other 11 months of the year.

For investors who wish to take advantage, here are some strategies for picking up underpriced assets before ringing in 2012. JANUARY BOUNCEBACKS

Individual investors sell losing stocks at the year's end largely for the tax benefit of posting a capital loss. Mutual fund managers have a different incentive: looking smart.

It means money managers often sell underperforming stocks before the end of December to eliminate big losers from their annual reports to investors. This concentrated selling, or window dressing, punishes stocks that are already flailing.

But that move often leads to a January rebound. In each of the last six years, Pankaj Patel, an analyst at Credit Suisse, says that large-cap stocks trading near their 52-week lows in November have outperformed the S&P 500 through the end of January. In 2010 the stocks Patel identified outperformed the S&P 500 by 5.8 percent in January 2011.

Based on a screen of stocks that were recently trading near their 52-week lows but scored well in terms of underlying value. Patel identified his three bounce-back favorites: Walgreen (WAG.N), Newfield Exploration (NFX.N), and Ameriprise Financial (AMP.N). Walgreen, for instance, hit its 52-week low on November 23. It trades at a price to earnings multiple of 11, nearly half of its 52-week high.

"Ideally, you're buying these stocks now when the selling pressure is still there and selling them in the middle of January," Patel said. EMERGING MARKET ETFS

Some of the world's fastest growing economies had the worst stock performance in 2011. But that trend may do a U-turn in 2012.

For starters, central banks in emerging markets tightened rates this year to cool inflation. That temporarily hit their stocks. Adding to that pressure, investors worldwide moved money out of riskier assets after the downgrade of U.S. debt and amid concerns about the stability of the European Union.

"In an ironic way, emerging markets could benefit from the global slowdown that we're having," said Michelle Gibley, a senior market analyst at Charles Schwab who specializes in international markets.

Emerging market central banks are less concerned about inflation when the global economy looks weaker, Gibley said. In one sign of this shift, China's central bank cut reserve requirements for banks in November, easing credit for the first time in nearly three years. That helps China's economy, but also trading partners like Brazil.

Also, whenever these countries lower interest rates, equities become more attractive investments.

Exchange-traded funds offer a low-cost way to invest in those indexes, with the possiblity of capital gains and dividend yields. The SPDR S&P China fund (GXC) yields 4.14 percent, well above the 1.96 percent yield of the S&P 500. The iShares MSCI Brazil (EWZ), meanwhile, yields 6.1 percent. BUYER BEWARE

An old investing strategy is to pick the five worst performing stocks in the S&P 500 index -- and sometimes it works. But this year could be an exception.

The reason? Large financial institutions are this year's laggards. These companies still face problems ranging from an overhang of U.S. mortgage losses to Europe's lingering debt crisis.

Many analysts say mega-financials such as Bank of America (BAC.N) and Citigroup (C.N) may have further to fall. Increased regulation and election-year pressures from Washington could make financials even more risky, said Doug Roberts, chief investment strategist at Channel Capital Research.

Bank of America is currently the laggard of the S&P 500 with a 57 percent year-to-date decline. American International Group (AIG.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Citigroup aren't far behind with losses of 37 percent or more.

Investors who want to pick up financial stocks should look for those with the greatest potential for dividends and share repurchases, Marty Mosby, an analyst at Guggenheim Partners, suggested in a note to clients. He recommended Wells Fargo (WFC.N), US Bancorp (USB.N) State Street (STT.N) and Bank of New York Mellon (BNY.N) as the "the four banks with the greatest combined potential" in 2012, in part because he believes that they have stronger risk management practices.

Each of these banks has fallen in 2011, but US Bancorp has the best year to date performance with just a 3 percent slide. Wells Fargo will likely see its earnings per share boosted by 6 percent from share repurchases next year, Mosby noted. (Reporting by David Randall; Editing by Jennifer Merritt and Richard Satran)