NEW YORK (CNN/Money) - It's been a tough year for the once-mighty greenback, and it keeps getting tougher.

War jitters, a weakened economy and worries that the Bush administration will reverse the so-called "strong-dollar" policy (despite its protestations to the contrary) have sent the buck down 11 percent in 2003 against the currencies of the United States' major trading partners. With the acceleration in the dollar's decline in recent weeks, some worry the dollar could go lower still -- and that in turn could send overseas investors scuttling out of U.S. stocks.

The fortunes of the U.S. dollar and the U.S. stock market have been closely linked. Through the 1990s, when U.S. stocks outperformed their counterparts overseas, the dollar fared well. In part this was because both stocks and the dollar were responding to the same thing -- a strong U.S. economy -- but it was also due to an increasing appetite among foreign investors for U.S. stocks.

"Over the past several years you've had a very healthy participation by foreign investors in the equity market. But if you look at the most recent quarterly data, they haven't been buying as much," pointed out J.P. Morgan equity strategist Carlos Asilis, who thinks that a weakening dollar could roil the stock market in the year to come.

Asilis is not alone in this regard. Through the boom years and beyond, the current-account deficit -- the share of U.S. wealth held by overseas investors -- swelled to unprecedented levels. After reaching a high of $127.6 billion in the second quarter of this year, it slipped only slightly, to $127 billion, in the third quarter. The big deficit doesn't mean the greenback has to go down, but it sure makes a decline in the dollar more likely.

"What the current deficit does is make the dollar vulnerable," said Brown Brothers Harriman foreign exchange economist Lara Rhame. "It means we could see a vicious cycle, where a declining dollar makes U.S. assets less attractive to foreign investors, which weakens our assets further, which puts further pressure on the dollar."

In the nightmare scenario this all leads to a huge drop in the dollar and U.S. stocks. The potential for some sort of scaling out of U.S. assets is certainly there. Nearly half of the fund managers polled in a recent Merrill Lynch survey said the dollar was the most overvalued currency and that U.S. stocks were the world's most overvalued equities.

Before you decide to hole up in a bunker, however, know that current-account worries have been a regular feature of the market, sending investors into a tizzy every year or so but never quite coming through. Worries about the "twin deficits" -- the current account and the budget -- abounded during the 1987 crash. In the fall of 1998, during the height of the Russian debt crisis, commentators worried that the hefty current-account deficit could lay the U.S. low.

"Just like a pendulum," said HSBC currency strategist Meg Browne, "the current-account theme is back in the market."

Browne thinks it's unlikely a large-scale exodus of foreign cash from the United States will happen because U.S. Treasurys are seen as one of the best places to park cash in times of worry. The type of worries that people think could precipitate a dollar collapse -- a war with Iraq, for example -- would more likely make the dollar more attractive, she said.

Moreover, thinks Morgan Stanley chief global economist Steve Roach, U.S. officials are working overtime to prevent any sort of flight out of U.S. assets, keeping monetary policy easy and considering investor-friendly measures, like proposed cuts in the tax on stock dividends.

"If the authorities succeed in juicing the equity market up again, the dollar is going to hold up just fine," he said.