UPDATE 2-More money flows out of muni funds amid stocks rally

WASHINGTON, March 14 (Reuters) - For the second week in a row, investors pulled money out of U.S. municipal bond funds as the stock market continued to soar.

In the week ended March 13, U.S. municipal bond funds reported net outflows of $112.5 million, following outflows of $96.9 million in the previous week, according to data released on Thursday by Lipper, a Thomson Reuters company.

That helped push the four-week moving average down to $101.49 million of inflows from the previous week's $252.35 million.

"It's another strong week for equity funds," said Chris Mauro, director of municipal bond Research at RBC Capital Markets. He noted that those funds had inflows of $11 billion, or $3 billion when exchange-traded funds were taken out of the calculation. "We're beginning to see munis erode as a result."

For two months, investor money poured into municipal bond funds before reversing last week, amid a long stock market rally. The Dow Jones industrial average ended Thursday at another record high, its 10th day in a row of hitting uncharted levels, while the S&P 500 ended just 2 points shy of its closing high.

High-yield bond funds also registered outflows, of $83.2 million, up from last week's $1.3 million in outflows.

Exchange-traded municipal bond funds, however, showed hefty inflows of $207.6 million in the latest week, the largest on records going back to 2007.

Mauro said much of the inflow was attributed to one fund, which can heavily influence a small sliver of the market. Exchange-traded funds have $10.2 million in assets, compared with all municipal funds, which have $324.12 million.

When subtracting ETF activity, this week's outflows from the tax-exempt bond funds that are popular with retail investors jumped to $320 million, said Mauro.

"The bottom line is it looks like - whether you look at it with ETFs included or excluded - it was a loss driven by money coming out of long-end funds," he added.

Retail investors bought 1.7 bonds for every one they sold in the week ended March 13, the same pace as during the previous two weeks, according to BondDesk Group.

The number of bonds bought totaled 61,750, while the number of bonds sold was 35,792.