* Morningstar estimates $12.4 billion net inflows in Q1

* "Worst is over," analyst says

* Franklin Resources down 3.7 percent, Waddell & Reed flat (Adds quote from Franklin chief executive, details from Fidelity)

By Ross Kerber

BOSTON, April 28 (Reuters) - An era of sharp investor withdrawals is easing for mutual fund firms.

Two U.S. asset-management companies, Franklin Resources Inc (BEN.N: Quote, Profile, Research) and Waddell & Reed Financial Inc (WDR.N: Quote, Profile, Research), reported more stable flows of funds on Tuesday, suggesting that investor confidence was increasing after a rocky fourth quarter.

Chicago research firm Morningstar Inc (MORN.O: Quote, Profile, Research) estimated the top 25 U.S. mutual fund firms collectively took in $12.4 billion during the first three months of the year, excluding money market funds, compared with net outflows of $110.9 billion in the fourth quarter of 2008 and net outflows of $55.2 billion for all of last year.

"I would expect that the worst is over for a lot of these firms," said Christine Benz, Morningstar's director of personal finance. "It's hard to imagine a scenario that's worse than the fourth quarter was."

While more stable markets could be reassuring investors, Benz said other explanations could be that consumers opened new retirement accounts in the first quarter or put savings into asset classes such as bonds they previously would have avoided.