Investor optimism at highest in two years

NEW YORK Fri Jan 22, 2010 9:51am EST

NEW YORK (Reuters) - More U.S. investors believe the stock market is poised to rise in the year ahead than any time in the past two years, a survey showed on Friday.

The probability of further gains in stocks, even after a spike of more than 65 percent on the S&P 500 from its lows last March, was judged as more likely in January than any time since the end of 2007, data from the Reuters/University of Michigan Surveys of Consumers indicated.

The mean probability of stock price gains during the year ahead stood at 46.9 in all surveyed households, the highest since the 51.3 mean for the last quarter of 2007. In households where more than $25,000 in stock is owned, the January figure was 53.0, the highest since the 58.7 mean in Q4 2007.

The largest gains in positive sentiment came from households with lower incomes and lower wealth in terms of home values and stock portfolios, data showed.

"While this may simply signal a catch-up among small investors, it may also signal greater hesitancy among those who are most able to invest more substantial amounts in the market," said Richard Curtin, director of the surveys, in a statement.

While expectations of more gains in stocks could drive more investors to the market, fueling a move further, market participants may also be concerned about an excess of confidence.

The CBOE Volatility index, Wall Street's gauge of sentiment, traded last week at a 19-month low, spurring some concern the bullish sentiment may have overextended.

It was at the last peak the survey, in the last quarter of 2007, when the stock market began a decline that still has the S&P 500 almost 30 percent below its historic high.

(Reporting by Rodrigo Campos, Editing by Chizu Nomiyama)

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