Global pension funds return to stocks in 2009-study

* 2009 returns not enough to bridge 2008 losses

* Bond allocation falls as equity markets recover

* Alternative investments grow

LONDON, Feb 1 - Recovering share prices attracted pension funds in 2009, reversing a trend in favour of bonds in the wake of the credit crisis, a study by consultant Towers Watson said.

Pension schemes allocated 54.4 percent of their assets to equities last year up from 48 percent in 2008, with the UK, United States, Australia and Canada investing above this average level, the study said.

British pension funds, however, have steadily cut their exposure to equities, to 60 percent in 2009 from 77 percent in 1999.

Investments in bonds decreased to 26.9 percent from 32.1 percent in 2008, bucking a trend which saw pension funds' allocations to this asset class grow from 24.5 percent in 2005.

As well as returning to higher risk assets, pension funds broadened their investment horizons to improve diversification, with allocations to real estate in particular and to a lesser extent hedge funds, private equity and commodities, growing to 17 percent from 12 percent in the last five years, the study said.

Swiss and Dutch pension schemes had the largest allocation to alternative assets, such as property.

Global institutional pension fund assets in the major markets increased by 15 percent to over $23 trillion in 2009, but that did not make up for the 21 percent losses in 2008.

"In order to get back on track, (schemes) will be reviewing all options, including extra contributions from sponsors, contingent funding arrangements, investment strategy reviews," said Roger Urwin, global head of investment content at Towers Watson.

Companies also continued to close onerous defined benefit schemes in favour of less expensive defined contribution plans, which now account for 42 percent of pension assets. (Reporting by Sarah Hills and Cecilia Valente; Editing by Greg Mahlich)