Jeffrey Hutton is a Morningstar contributor.

A bull rally that has seen US equities reach their highest level in four years may still have room to grow, investors and analysts say, as Europe sorts out its debt worries and as US blue-chip companies like Apple and eBay wow the market with dividends and better-than-expected profits, thanks in part to growing sales in emerging markets.

The S&P 500 has gained about 8 per cent in the past 12 months, putting it within 11 per cent of its peak in October 2007. That compares with a 2.2 per cent fall for the ASX 200, which leaves the bourse about 37 per cent of its peak in mid-2007.

The US rally underlines investor relief that Greece appears to have sorted through its default at the same time some of the world's biggest US companies post impressive earnings growth thanks to the growing role of emerging markets.

"This is the fundamentals versus the risk scenario everyone was playing out six months ago," says George Boubouras, head of investment strategy and consulting at UBS.

"Investors are heaving a sigh of relief and saying, 'Okay, the end of the world isn't happening."

Australian equities have lingered behind their US counterparts, as high interest rates and an underwhelming earnings season prompt many would-be investors to leave cash in term deposits.

Worries that China may be losing its appetite for Australian resources has also eroded confidence in domestic equities, says Shane Oliver, head of investment strategy and chief economist at AMP Capital.

Emerging economies will likely show average growth rates of about 5 per cent this year, while the developed world will eke out about 1.5 per cent, says Boubouras.

Oliver says that by historical earnings standards, US equities still appear good value. US forward earnings forecasts are on average about 12 times share prices, compared with the long-term average of about 13.

During the tech bubble at the beginning of the last decade, the forward earnings multiples were roughly 25 times, Oliver says.

The earnings yield on US equities is about 8 per cent, compared with 2.2 per cent for 10-year US Treasuries.

"The rally still has room to grow," Oliver says.

Apple said this week that it will pay its first dividend in 17 years and buy back US$10 billion in stock, yielding to investor demands to distribute some of its US$98 billion cash pile.

Ebay's fourth-quarter profit last year soared 16 per cent after its PayPal money transfer service "gained a bigger footprint in emerging markets".

David Buckland, chief executive officer of investment manager Hunter Hall, which has $1.5 billion under management, said while he was unsure if the US rally was sustainable, the technology sector was promising.

"There are pockets of strength in the US economy," Buckland says. "The tech sector is growing top-line revenue and cash holdings."

He worries, though, that consumers in the US may still be keen to pay off debt, crimping their buying power and hurting the housing and banking sectors - two segments he would avoid.

"I'm not sure the deleveraging story has been played out," Buckland says.

Australian markets may underperform US equities until as late as the fourth quarter of 2012 on worries that China is buying less iron ore and other resources, Morningstar head of equities strategy Ross Bird says.

Iron ore prices may fall 8.5 per cent this year thanks to an increase supply and slowing Asian demand, the Bureau of Resources and Energy Economics said in a report this week.

A rising US dollar plus a return of confidence in China's outlook will woo investors back to Australia, Bird says.

"We'll have our day in the sun again, but it won't be for another three to six months," says Bird, adding that he is bullish on the resources sector in the longer term.

"The US is showing signs of life."

Also supporting US equities is a sell-off of 10-year US Treasuries, which recently traded at a yield of 2.28 per cent.

Matthew Johnson, interest rate strategist for UBS, expects those yields to creep up to between 2.75 per cent and 3 per cent as investors sell off the bonds, which are normally held as a defensive play in uncertain times.

"Debt markets have definitely turned a corner," Johnson says, adding that the improving debt outlook for European countries like Greece has eased demand for the safest investments.

"At the end of last year, there was very good demand for government debt. Issuers of lower-quality credit are now finding it easy to borrow money."

Boubouras says the test of the durability of the US rally will come later in the year when US companies begin reporting earnings with slower rates of growth.

Consensus forward earnings growth is between 3 per cent and 6 per cent, compared with the period following the global financial crisis (GFC) when average comparative earnings growth was closer to 15 per cent, Boubouras says.

But investors may not have much choice because US bonds may still be overpriced relative to rates of inflation, Boubouras says.

"Where are they going to go? Bonds?" Boubouras asks.

"The question is whether investors will be able to hold their nerve given earnings growth rates will be the slowest they've been since the GFC."