UPDATE 1-Fund investors sour on U.S. stocks, redeem $3.62 bln-EPFR

Fri Feb 15, 2013 1:22pm EST

By Sam Forgione

NEW YORK Feb 15 (Reuters) - Investors worldwide pulled $3.62 billion from U.S. stock funds in the latest week, the most in 10 weeks after taking a neutral stance the prior week, data from EPFR Global showed on Friday.

The outflows from U.S. stock funds in the week through Feb. 13 were the biggest so far this year. Investors still gave $1.81 billion in new cash to stock funds in the week ended Feb. 13, the fund-tracking firm said, as demand continued for emerging market equities.

January was a strong month for stock funds, which reaped more than $18 billion in new cash in the first and last weeks of the month. Mom-and-pop retail investors regained confidence in the funds over the month, but started taking profits last week after the S&P 500's monthly rise of 5.1 percent.

"Some of the momentum has slowed," said Rick Meckler, president of investment firm LibertyView Capital Management in New York. "People are still taking profits," he added.

The demand for equities went toward emerging market stock funds, which pulled in $2.44 billion in new cash. That amount still lagged the previous week's inflows of $3.42 billion.

European stock funds lost fans for a second straight week this year with outflows of $38 million after investors pulled $264 million from the funds the prior week.

The S&P 500 rose just 0.5 percent over the weekly reporting period. Data showing that the U.S. trade deficit narrowed in December and strong international trade in China and Germany boosted sentiment.

Concerns over the euro zone debt crisis were rekindled, however, after European Central bank President Mario Draghi said the region would face further economic weakness.

Bond funds worldwide overtook equities with inflows of $2.58 billion, which was more than double their gains from the prior week. Investors who shunned U.S. stocks sought the nation's bond funds, and gave $2.28 billion in new money.

"I think the immediacy of the 'great rotation' is way too early," said Margie Patel, managing director at Wells Capital Management, on speculation last month that investors were moving out of bonds and into stocks.

"Fixed income investments have been too good of an investment for too many years for investors to just reverse course," Patel added.

Emerging market bond funds grabbed $1.1 billion in new cash, which was roughly the same amount as in the prior week. European bond funds, however, suffered outflows of $1.19 billion, the highest in over a year, according to EPFR Global.

Funds that hold risky high-yield "junk" bonds had outflows of $207 million. Redemptions were milder than the previous week, when investors pulled $1.33 billion out of the funds.

Patel of Wells Capital said that outflows from high-yield bond funds are in response to yields on the safe-haven 10-year Treasury touching 2 percent in recent weeks, and that the funds will recover their inflows after Treasury prices rise. Friday, benchmark 10-year notes were last down 9/32 in price to yield 2.04 percent.