UPDATE 1-Stock funds worldwide reap $5.5 bln, second week of inflows -BofA

Fri Jul 11, 2014 12:30pm EDT

(Adds additional flows, market performance, investor comment)

By Sam Forgione

NEW YORK, July 11 (Reuters) - Fund investors worldwide poured $5.5 billion into stock funds in the week ended July 9 as a stronger-than-expected June U.S. jobs report bolstered hopes for better U.S. economic growth, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

The inflows marked the second straight week of new cash into the funds and exceeded the prior week's $1.4 billion in inflows, according to the report, which also cited data from fund-tracker EPFR Global. Funds that specialize in U.S. stocks pulled in $600 million after posting a sizable $3.7 billion in outflows the prior week. Bond funds attracted $3.6 billion.

Emerging market stock funds attracted $1.4 billion of the net inflows to notch their fifth straight week of new demand, while Japanese stock funds attracted $700 million after flat flows the prior week.

Despite a decline in stock markets worldwide over the weekly period on hesitation ahead of second-quarter earnings reports and a surprise drop in German industrial output, Labor Department data on July 3 showing U.S. employers added 288,000 jobs in June and the unemployment rate fell to a near six-year low of 6.1 percent drove inflows into stock funds.

"The U.S. has had a really hard time getting a virtuous cycle going where hiring leads to more hiring," said Michael Jones, chief investment officer of RiverFront Investment Group in Richmond, Virginia. "This nonfarm payrolls report, and the revisions to prior ones, give some hope that at long last we're seeing that virtuous cycle unfold."

Despite slipping 0.1 percent over the period, the benchmark S&P 500 stock index hit a record closing high after the jobs report, while the Dow industrials also closed at a record high and passed the 17,000 milestone.

Precious metals funds attracted $1 billion, marking their biggest inflows since Sept. 2012. Gold was up 0.7 percent at $1,328.10 an ounce at the end of the period.

The inflows into bond funds marked the third straight week of new money. Investment-grade bond funds attracted $3.2 billion of the net inflows, while riskier high-yield funds saw no inflows after attracting $1.1 billion the prior week.

The release of the minutes from the Federal Reserve's June policy meeting and some fears of investing in stocks at record highs helped push inflows into bond funds, said Jones of RiverFront.

"They didn't alarm anyone in terms of imminent rate increases," Jones said on the Fed minutes. Investors are watching the Fed for signs of when the central bank will raise interest rates from rock-bottom levels, which would hurt bond prices.

Funds that hold inflation-protected Treasuries (TIPS) attracted $300 million, marking their third straight week of inflows. Investors are also eyeing inflation, which currently remains below the Fed's 2 percent target.

(Reporting by Sam Forgione; Editing by Chizu Nomiyama and Meredith Mazzilli)

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