With the longest U.S. bull market in history showing signs of topping, the time has come to scrutinize your portfolio to make sure you have sufficient down-side protection, says The Value Line Mutual Fund Survey.

"This also happens to be an excellent time to consider European stock funds. As the U.S. economic cycle winds down, Europe's is expected to continue its steady, moderate growth until its next top in two or three years."Europe's economic cycle is a few years behind the U.S. cycle, slowed by record unemployment and the need to meet requirements for membership in the European Economic and Monetary Union (EMU). But the fundamentals of a resurgent economy are there, says Value Line: massive cuts in government spending; ongoing restructuring of unprofitable companies; slashed costs; and an intense focus on creating share-holder value.

"Since these efforts are driven by the January 1999 EMU deadline, they're all but certain to continue for the next three or four years. Earnings growth will thus be supported by the restructurings as well as by the economic cycle, and may well be greater than forecast."

All the benefits of international investing apply to Europe, says Value Line, including diversification and overall risk reduction. Europe is less exposed to a deterioration in Asian markets than the United States, for example, since Asian markets account for only about 4 percent of Europe's exports, vs. about 30 percent for the United States.

Europe is also a good value, according to Value Line.

"It offers stable economic conditions with moderate growth, improving company fundamentals, and undervalued equities, plus the prospect of significant new expansion after EMU. There is also a good chance to pick up a great buy in an excellent closed-end fund such as Europe Fund, which has produced 20.3 percent average annual gains over the past five years, yet recently sold at a 14 percent discount to its net asset value."

Many studies have confirmed the positive effect of international investing. Because overseas business and economic cycles differ from ours, foreign holdings can significantly reduce the volatility of an all-domestic portfolio. The diversification effect offers substantial downside protection. In fact, allocating a portion of one's portfolio to foreign investments has been shown to moderately increase overall returns. It's not necessary to invest a lot; research shows that the first 10 percent to 20 percent commitment provides the greatest benefit.

There is inevitably some currency risk in international investing, admits Value Line. But the risk is low in Western Europe.

"EMU is going to happen, though whether it will continue long-term is a different issue. Any volatility resulting from the approaching deadline is likely to be short-lived."

Here, according to The Value Line Mutual Fund Survey, are the best-performing European funds over the past five years: Dean Witter European Growth (up 20.6 percent annually), Putnam European Growth (up 18.9 percent), Pioneer Europe (up 17.2 percent), Vanguard International Equity European (up 17.0 percent), Fidelity Europe (up 17.0 percent). The Dean Witter and Putnam funds also rank 1-2 for risk aversion; the Vanguard fund is no-load.

(Value Line Mutual Fund Survey, 220 E. 42nd St., New York, N.Y. 10017-5891; biweekly, $295 annually.)