WASHINGTON -- The Republican rout in this week's U.S. congressional elections sets the stage for a bitter struggle for control of the country's economic policy.


Republican control of both the Senate and the House spells doom for many of the ambitious "investment" proposals that were the heart of President Bill Clinton's economic agenda in the 1992 presidential campaign. And Clinton can marshal the powers of the presidency to try to block the Republicans from passing the central components of their much-touted "Contract With America'' -- a balanced budget amendment, sweeping tax cuts and a big boost in spending on defense.


The danger, analysts said, is that there will be no way to direct the economy as an activist president and anti-government crusaders in the new Congress wrestle for the steering wheel.


"Economic policy for the next two years is purely in the hands of the Federal Reserve,'' said Barry Bosworth, a Brookings Institution economist.


In the aftermath of the Republican victory, Clinton, Senate Republican Leader Robert Dole of Kansas, and Representative Newt Gingrich, a Republican from Georgia who will be House speaker, all pledged cooperation. But on economic policy issues, moving from rhetoric to reality won't be easy.


Key members of Clinton's economic team are likely to argue for accommodation on the grounds that U.S. economic problems are too important to neglect.


Some economic advisers are hoping that Clinton will return to his New Democrat roots by concentrating on a limited number of middle-of-the-road economic proposals -- such as welfare reform -- and attempt to govern from the center.


At a news conference Wednesday, Clinton said he backed Republican efforts to enact a line-item veto, which would allow a president to strike individual items in spending bills.


But many White House political advisers see compromise as a trap, suspecting that the Republican strategy is to embarrass the president at every turn in an bid to discredit him as weak and ineffective before the 1996 presidential race


There will be sharp disagreements between the White House and Congress over taxes.


Some Clinton advisers think the administration should let the Republicans propose tax cuts, which, analysts said, would cost at least $50 billion over five years. If the two parties are drawn into a bidding war on tax cuts that sends the deficit soaring, some analysts said, financial markets and the Fed are certain to push up interest rates.


The new power balance in Congress will breathe life into Republican efforts for a Constitutional amendment to balance the federal budget -- another measure denounced by budget experts.


The Republican contract commits them to bring the measure to a vote within the first 100 days of the new Congress.


Few analysts said they expect the two parties to work together to rein in spending for such government benefit programs as Social Security, Medicare and Medicaid, the fastest growing items in the federal budget.