U.S.-based stock funds attract $12 billion in latest week - Lipper

By Sam Forgione

NEW YORK (Reuters) - Investors in funds based in the United States poured $12 billion into stock funds in the week ended Wednesday in response to positive U.S. economic figures, data from Thomson Reuters Lipper service showed on Friday.

The inflows into stock funds in the week ended November 27 were the biggest in five weeks. U.S. stock markets hit record highs on November 22 after strong U.S. jobs data and assurances that the Federal Reserve would remain accommodative.

"It's more of a momentum-driven market," said Barry Fennell, senior research analyst at Lipper. Investors have more confidence in the "staying power" of the U.S. economic recovery, he said.

Stock funds have attracted new demand from investors over the past three weeks as U.S. stocks have continued to rise. Funds that specialized in U.S. stocks attracted $8.9 billion of the total cash into stock funds in the latest week, while funds that hold non-U.S. stocks attracted $3.1 billion.

Data early in the reporting period showed that a number of Americans filing new claims for jobless benefits fell sharply over the prior week while a gauge of factory activity hit an eight-month high in early November.

Financial data firm Markit said its preliminary U.S. Manufacturing Purchasing Managers Index rose to an eight-month high of 54.3 from 51.8 in October, while the Labor Department said that initial claims for state unemployment benefits fell 21,000 to a seasonally adjusted 323,000. Economists had forecast a drop to just 335,000.

The Standard & Poor's 500 stock index rose 1.5 percent over the weekly period. The index has hit multiple record highs and risen over 26 percent this year.

Investors grew more assured that the Fed would keep official short-term interest rates low for some time, even if it does plan to scale back its $85 billion in monthly bond-buying, said Fennell.

Stock exchange-traded funds attracted $10.3 billion of the overall cash into stock funds. The SPDR S&P 500 ETF Trust attracted the greatest demand, with inflows of $4.7 billion.

ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor.

Japanese stock funds attracted $691 million in new cash, marking their biggest inflows since July. Japan's Nikkei average rallied 2.5 percent over the weekly period.

Funds that hold emerging market stocks attracted a meager $13.4 million in new cash, which still marked the first inflows into the funds in three weeks, despite a 1.1 percent drop in MSCI's global emerging market equities index over the week.

Taxable bond funds attracted just $141.5 million after outflows of $430 million the previous week. Fennell said that bond investors were more concerned during the week about a pullback in the Fed's monetary stimulus than were stock investors.

"We are in uncharted territory at this point," Fennell said in reference to the impact of the central bank's potential reduction in its bond-buying. "Nobody knows what's going to happen."

Funds that hold safe-haven U.S. Treasuries had outflows of $796.5 million over the weekly period, marking the biggest outflows in four weeks and the third straight week of investor withdrawals.

Investors pulled money out of Treasury funds in preparation for a pullback in the Fed's easy money policies at its December meeting, Fennell said. The cash that was taken out of bonds likely went toward low-risk money market funds, he added, which attracted $3.1 billion.

Prices on benchmark 10-year U.S. Treasury notes rose modestly during the week, despite uncertainty about the Fed's timing for reducing its stimulus. The yield on the bond fell five basis points to 2.74 percent over the weekly period.

Funds that hold high-yield junk bonds, which are viewed as riskier because they carry lower-quality credit ratings, attracted $433 million in the latest week, marking the third straight week of new demand.

Funds that hold floating-rate bank loans were also popular, with inflows of $823.2 million. The funds have attracted $59.7 billion in new cash this year on worries that a pullback in the Fed's accommodative policies will trigger a spike higher in interest rates.

A sharp jump in rates would weaken the value of bonds, since bond prices move inversely to their yields. Bank loans are protected from such a spike by being pegged to floating-rate benchmarks.

Investors shunned gold and pulled $868 million out of commodities and precious metals funds. That marked the biggest weekly withdrawals from the funds - which mainly invest in gold futures - since early July.

Investors are fatigued by gold's weak performance this year, said Fennell, while greater confidence in the U.S. economic recovery has hurt demand for the metal as a safety play.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

(Reporting by Sam Forgione; Editing by Jan Paschal and Lisa Shumaker)