UPDATE 1-U.S. prime money funds raise euro zone exposure in April-JPMorgan

Fri May 10, 2013 3:31pm EDT

NEW YORK May 10 (Reuters) - U.S. prime money market funds slightly increased their holdings of euro zone bank debt in April after Cyprus received a bailout to manage its bank problems, according to a report by JPMorgan Securities released on Friday.

The report showed the funds raised their ownership of euro zone securities by $3 billion, to $206 billion, last month, led by modest increases in German and French bank debt that included commercial paper, repurchase agreements and time deposits.

In March, these funds slashed their holdings in euro zone bank debt by $44 billion, which was the largest monthly decline since last June.

Renewed purchases in euro zone paper in April brought prime funds' exposure to the region up by $4 billion since the end of December 2012, JPMorgan said.

Investors feared that a meltdown of Cyprus' banking sector due to bad loans could ripple across the euro zone. The island nation eventually clinched a deal to secure a 10 billion euro ($13 billion) bailout from international lenders.

"With Cypriot headlines largely behind us, prime (funds) kept their euro zone holdings mostly intact," JPMorgan analysts wrote in their latest report.

Prime money funds also raised their holdings of U.S. bank debt by $5 billion, to $176 billion in April, reversing some of the $15 billion decline in March.

On the other hand, they reduced their stakes in Canadian and Australian bank debt last month by $15 billion, to $158 billion, and $11 billion, to $100 billion, respectively, JPMorgan said.