Litter decomposition is central in discussions and models of global carbon balances, and soil respiration represents a major input of carbon dioxide to the atmosphere (Schlesinger and Andrews, 2000). Northern forest ecosystems have been identified as major global carbon sinks (Myneni et al., 2001). The carbon and nitrogen cycles are tightly interlinked, and the effects of nitrogen deposition on litter decomposition are of particular interest, but the relationships are complex and observations often contradictory (Neff et al., 2002). Basidiomycetes occupy a central role as colonisers of litter, humus and soil in forests, but have not been studied extensively. Considering the vast literature on the ecosystem processes that these organisms carry out, the lack of knowledge of their identity, ecology and physiology is particularly striking. Most process-oriented research on nutrient cycling does not take the specific ecophysiology of litter fungi into account, but treats all microorganisms as a single functional entity. In the first part of this chapter, we discuss the spatio-temporal distribution of different functional groups of fungi, and review results from some recent studies that have used molecular identification techniques to investigate fungal succession in coniferous litter. In the second part of the chapter, the role of basidiomycetes in re-cycling of litter-bound nitrogen and carbon is examined. The nitrogen and carbon dynamics of decomposing litter is related to resource translocation in fungal mycelia.

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