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NEW YORK (Reuters) - Fund investors plowed a record $50 billion into money-market funds and pulled the most money out of stocks in one week since 2008, data from EPFR Global showed on Friday.
Markets have been roiled in recent weeks as investors grow more concerned another recession is on the way and Europe's debt crisis threatens to engulf the euro zone's largest economies.
Money market funds pulled in a net $49.8 billion in the week ended August 10 as concerns about the economy and financial system grew, according to the Boston-based fund tracking company.
The aversion to risk was evident in the pullback from stocks and riskier areas of the bond market, such as high-yield funds, while investor sought safer assets such as precious metals
"Overall, equity funds posted collective outflows of $26.1 billion, their worst showing since late second quarter 2008, while a record-setting $10.4 billion flowed out of bond funds," EPFR said in a statement.
The week included the historic downgrade of the United States' AAA credit rating by Standard & Poor's, a symbolic blow to the country's prestige. This followed fast on the heels of a down-to-the-wire deal to raise the country's debt ceiling and ensure payment of all its obligations.
S&P's downgrade highlighted the extreme friction within the U.S. government to get to a solution quickly, a condition that leaves investors nervous about its ability to govern effectively. The ongoing European debt crisis only added to the negative market sentiment.
"We expect no change in investor attitudes until volatility starts to subside," Royal Bank of Scotland analysts said in a research note on Friday.
The general risk aversion resulted in the biggest net outflow for high-yield funds -- $6.71 billion -- since EPFR started tracking the sector in the second quarter of 2005.
The Federal Reserve's announcement on Tuesday that it would not raise interest rates from near zero until at least 2013 hit floating rate note funds. In the week, $1.36 billion in net outflows was the largest since the first quarter of 2007.
U.S. bond funds overall, however, suffered net outflows of just $1.5 billion, indicating there were flows into safe havens, such as U.S. Treasuries.
European bond funds, with the threat of the sovereign debt crisis spreading beyond Greece, recorded $1.13 billion in net outflows.
Even emerging markets, with their better growth prospects, saw investors flee, although not uniformly.
Emerging market debt funds had $607 million in net outflows. Hard currency bond net outflows were $459 million.
"Given the scale of the global market rout, it is remarkable that investor redemptions were only moderate," David Spegel, global head of emerging markets strategy at ING in New York, said in a research note.
Local currency-denominated emerging market bond funds took in a net $108 million.
Barclays Capital noted the move was a little surprising given emerging market currencies, broadly, depreciated 2 percent against the U.S. dollar in the course of the week.
"Investors in EM local bonds either had sufficient FX hedges, or had enough confidence in their strong long EM term view to be willing to take FX-related marked-to-market losses on their bond exposure," Barclays wrote on Friday.
"The stickiness of their positions may also indicate expectations of fixed income capital gains because of the global disinflation risks and lower-for-longer G3 yields," the firm said.
Commodity funds took in a net $404 million for the week.
"As before, flows into funds specializing in gold and precious metals -- which have taken in over $9 billion since the beginning of July -- offset outflows from funds dealing with industrial commodities as hopes for growth in the second half of the year continue to plummet," EPFR said.
Emerging market equity funds had a net $7 billion pulled out, the most since the third week of 2008. Dedicated long-only emerging market equity funds had net outflows of $7.76 billion while the broader GEM (global emerging market) funds saw $3.24 billion in net outflows.
EMEA (Europe, Middle East, Asia) funds had $939 million in net redemptions.
The grim picture was also felt in developed market funds. U.S. equities had outflows of of $11.73 billion on growing fears the United States and the euro zone will slide back into recession despite stimulus efforts.
"Among U.S. equity funds it was the actively managed ones that bore the brunt of the week's outflows as retail investors pulled their money out of this fund group for the 15th time in the past 16 weeks," EPFR said.
Developed Europe stock funds had net outflows of $4.62 billion. Germany, usually a European safe haven, had net outflows of $635 million.
France, which came under pressure later in the week on concerns about Greek contagion, pulled in an net $86 million.
Among developed markets, Japan stood out with net inflows of $623 million.
Latin America had outflows of $692 million. Russia had net outflows of $412 million, its worst week since June 2006.
Given its currency peg to the U.S. dollar, Hong Kong focused equity funds had net outflows of $352 million, representing 6 percent of assets under management.
Reporting by Daniel Bases; Editing by Kenneth Barry and Dan Grebler