* Investors said favoring stocks, higher-yielding assets
* Washington budget fight keeps investors defensive
* Share of active "longs" falls to zero in latest week
NEW YORK, Jan 23 (Reuters) - The number of investors who are bullish on U.S. Treasuries fell to the lowest level in over 16 months as some of them favored stocks and other higher-yielding assets, a private survey released on Wednesday showed.
While the budget fight in Washington has been a drag on investor confidence, mildly encouraging economic data and corporate results have kept Wall Street stock prices near five-year highs and fueled demand for corporate bonds.
Top Federal Reserve officials including Chairman Ben Bernanke have suggested the central bank will continue its bond purchases into the end of the year in a bid to hold down long-term borrowing costs with the goal to reduce unemployment.
However, many investors remained cautious on persistent concerns about a protracted standoff in Washington over cutting federal spending and, to a lesser extent, about the debt ceiling.
The share of investors who were "long", or holding more Treasuries than their benchmarks, dropped to 7 percent from 21 percent the previous week, according to J.P. Morgan Securities' latest weekly survey of its Treasuries clients.
The latest figure was at its lowest level since the week ended Aug. 15, 2011, after the first debt ceiling fight between U.S. President Barack Obama and Republican lawmakers and Standard & Poor's stripped the United States of its top credit rating.
The previous week's reading showed the most "long" investors in two months.
The United States will near its $16.4 trillion debt ceiling between late February to March as it has implemented special measures to meet its financial obligations since the end of December. [ID: nL2N0AJDXD]
Republican lawmakers in the House of Representatives aimed to pass a bill later on Wednesday that would provide a near four-month extension of the debt limit and avert a U.S. default. U.S. President Barack Obama said he would sign the short-term debt increase.
The prospect of no agreement on raising the debt ceiling would lead to scenarios including a default on U.S. bonds and downgrades of the U.S. credit rating, which then would reduce the longer-term appeal of Treasuries, analysts said.
While a temporary increase in the debt ceiling will stem an imminent U.S. default, there has been little movement toward a deal between the two major U.S. parties on reducing spending, causing most investors to not pare their Treasuries holdings too much in their search for yields.
The share of investors surveyed who said they were "neutral" on U.S. government debt, or holding Treasuries equal to their portfolio benchmarks, rose to 74 percent from 64 percent the previous week.
The share of investors who said on Tuesday they were "short" Treasuries, or owning fewer Treasuries than their benchmarks, increased to 19 percent from 15 percent the prior week.
Benchmark 10-year Treasury notes were up 4/32 in price early Wednesday, yielding 1.828 percent, down 2 basis points from late on Tuesday. On Jan. 4, the 10-year yield climbed near 2 percent its highest level in eight months.
Wall Street shares opened higher on Wednesday.
Within the survey, more active clients, including market makers and hedge funds, who are viewed as taking on speculative bets in Treasuries, expected Treasury yields to rise in the latest week.
The share of shorts among active clients rose to 46 percent from 31 percent, while the share of neutrals was unchanged at 54 percent.
The share of longs among active clients dropped to zero, a level not since the week of Nov. 5. Last week, the active "longs" touched its highest level since Dec. 3.