Schwab says advisers steering cash back into market

* Financial adviser confidence is improving - survey

* Economic recovery has surprising upside -Schwab exec

By Clare Baldwin

NEW YORK, March 3 (Reuters) - A year and a half after the depths of the financial crisis, independent financial advisers are slowly shifting client assets out of cash and back into the market, brokerage giant Charles Schwab Corp SCHW.O said this week.

Advisers are pulling money from cash and mutual funds to boost allocations to exchange-traded funds. They are also funneling more dollars into large-cap international equities, Schwab said, citing a January survey of 1,144 advisers overseeing more than $252 billion in client assets.

"I think if anything, we're going to be pleasantly surprised by the ability of the economy to enter into something resembling a self-sustaining path," Schwab Chief Investment Strategist Liz Ann Sonders said at a briefing on Tuesday.

Sonders said that she has been more bullish on the U.S. economy than her peers and acknowledged real estate prices continue to slide, but big macro factors like pent-up demand and recovering credit markets would trump that.

She also said much of the downside has already been priced in to the market.

"I think we have a catch-up phase that, at least on the margin, has the potential to surprise on the upside," she said.

Advisers are still somewhat wary -- 57 percent of those surveyed said it will be difficult to achieve client investment goals -- but that number is down from 84 percent a year ago.

That rising confidence is also seen in how advisers are investing client assets, with 35 percent of the advisers surveyed saying they would invest less in cash.

Fixed income investments are also declining, as only 16 percent of advisers said they would increase allocations to fixed income, down from 42 percent in in January 2009.

Many investors held larger-than-normal portions of their portfolios in cash during the financial crisis, to protect themselves against market drops. Fixed-income investments were also considered relatively "safe" investments.

But as the market rises from year-ago lows advisers are looking for higher returns and many are moving cash to exchange-traded funds (ETFs), which track an index, often charge lower fees than mutual funds and offer tax advantages.

Thirty-six percent of those surveyed said they would increase their allocation to ETFs in the next six months and 37 percent of those said the money would come from cash reserves. Another third said the money would be taken away from mutual fund investments.

Independent advisers are also showing interest in large-cap international equities. A third of the advisers surveyed said they would increase their allocation to large-cap stocks in emerging markets.

Another 28 percent said they would boost investment in developed markets' large-cap stocks and another 26 percent said they would increase investment in U.S. large-cap stocks. (Reporting by Clare Baldwin, editing by Matthew Lewis)