Global investor confidence rises although Europe lags

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Confidence among investors is rebounding strongly on a global basis although there are signs that Europeans may be beginning to worry about bad times ahead for their region.

A series of sentiment indicators over the past few days have painted a picture of rising risk appetite, the likes of which have not been seen since October last year just before equity markets hit a peak and then turned sharply downwards.

U.S. financial services firm State Street said on Tuesday that its global investor confidence index rose to 81.0 in May, its highest level in seven months, from a downwardly revised 72.3 in April, previously 72.8.

It marked a sharp increase from the all-time low of 65.9 charted in December.

"This month's increase ... suggests that the outlook of institutional investors is brighter than it has been for some time," said Harvard Professor Ken Froot, a co-developer of the State Street index.

State Street calculates investor confidence from the buying and spending patterns within the $15 trillion it holds for institutional investors as custodian.

Investment bank UBS, meanwhile, came up with a similar picture of rising risk appetite in its latest weekly analysis, released late on Monday.

It said equity risk appetite among investors was surging, again to its highest level since October 2007.

Risk appetite is also improving among fixed income and foreign exchange investors, it said.

The increase in sentiment is reflected on financial markets. Emerging market stocks as measured by MSCI, for example, reached a 2008 high on Monday, wiping out all this year's losses before falling back on Tuesday.

MSCI's main world index, meanwhile, is less than 2 percent away from recouping all it 2008 losses and less than 8 percent below another all-time high.

Government bond yields are also rising and emerging market bond spreads narrowing, both signs of a move to riskier assets.

EUROPEAN ANGST

While sentiment is generally growing, however, European investors appear to be less confident than others.

German investor sentiment unexpectedly declined for a second month in a row in May, weighed down by fears that inflation and a strong euro will curtail growth in Europe's largest economy.

The ZEW economic research institute said on Tuesday its gauge of expectations for Germany, based on a poll of 300 analysts and investors, fell to -41.4, down from -40.7 in April.

At the same time, State Street noted that the rise in its global index came mainly as a result of a rebound in North American.

European confidence fell between April and May.

"We note something of a divergence in the timing of the cycle on each side of the Atlantic," State Street's Paul O'Connell, another co-developer of the index, said.

(Additional reporting by Krista Hughes and David Milliken)