(FORTUNE Magazine) – Art markets have been so depressed for so long that dealers may be forgiven for feeling like the angst-ridden subject of Edvard Munch's "The Scream." Now, however, rays of optimism are beginning to filter through the world's auction houses. Overall prices have stabilized, and some niches, like modern U.S. painting and modern European sculpture, are even trending up.

True, works of art command nowhere near the sums they once did. The Daily Telegraph Art Index, compiled by London's Art Market Research, has plunged more than 50% from its peak in 1990, wiping out the absurdly overblown gains from the previous three years, when the index actually doubled. Explains Robin Duthy, director of Art Market Research: "In 1987, Japanese buyers saw that art prices held up during the stock market crash. They assumed art was a safe haven and bought heavily, pushing prices way beyond realistic levels. When the Japanese economy turned down, they stopped buying, and so did everyone else."

Now modern U.S. painters like Willem de Kooning and Cy Twombly are again in demand. One highlight: the sale of Andy Warhol's "Shot Red Marilyn," which went for a ripping $3.6 million last November. Duthy's modern U.S. painting index climbed 8.6% last year, and auction houses are optimistic about the upcoming May sales. Both Christie's and Sotheby's reported increases in revenues and net income for 1994. Says Duthy: "Collectors who said 'This is just madness' and sat out the late 1980s are coming back to the market."

- Andrew E. Serwer