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Loomis Sayles' Fuss says U.S. recession over

NEW YORK (Reuters) - One of the leading U.S. bond fund managers said on Thursday the U.S. recession is over and the United States is set for a slow recovery that may take until 2011 to fully blossom.

Dan Fuss, who oversees more than $45 billion for Boston-based Loomis Sayles, said he is buying corporate debt, including healthcare industry bonds, to pick up more yield, particularly nine- and 10-year notes, and selling 30-year bonds to reduce the maturity of his fund.

Loomis also is selling bonds rated AA and buying BBB-minus debt.

“The recession is over,” Fuss told Reuters on Thursday. “We’ve lost four years. We’re betting we’re not going to have a lost decade.”

Even so, Fuss said it is unlikely that the Federal Reserve will raise rates before 2011, as an economic recovery will be slow and drawn out.

Economists and strategists at this week’s Reuters Investment Outlook Summit concurred that the United States could experience tepid growth of between 1 percent and 2 percent next year.

“For now, I don’t see any rate hikes coming this year or next,” Fuss said.

Aggressive actions by the Fed, including the Term Asset-Backed Loan Facility, or TALF, “brought a bid back to markets that were seizing up,” he said.

Fuss was referring to the asset-backed securities market, which is comprised of debt backed by collateral like credit card payments and auto loans.

During a one-hour interview with Fuss and Warren Koontz, who co-manage a global markets fund, the managers also said that fund is reducing its U.S. equity positions.

TRIMMING U.S. HOLDINGS

Koontz, a Loomis vice president and chief investment officer, said he reduced U.S. positions for his global markets fund to the “low 50s” from 62 percent after the recent rally in U.S. stocks.

He said the fund has “single-digit” holdings in countries such as China and India, and Loomis is studying investment opportunities in emerging market nations.

Financial and energy stocks may offer investor value, Koontz said, and Loomis bought stocks of Bank of America, JPMorgan Chase & Co and Wells Fargo in June for the $750 million global markets fund, he said.

Fuss’ primary mutual fund, the $15.5 billion Loomis Sayles Bond fund, underperformed most of its peers late last year as its credit- and liquidity-sensitive holdings lost value, but the fund has made a strong comeback in 2009.

Through Wednesday, the fund has returned 16.4 percent in 2009, outperforming 84 percent of its peers, and 5.6 percent annually over five years, outperforming 89 percent, according to Morningstar Inc.

In contrast, over the last year, the fund is down 8.91 percent, reflecting its late 2008 problems, and outgained just 24 percent of its peers.

Reporting by Walden Siew and Jennifer Ablan; Editing by Jan Paschal

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