* Shifts to euro from dollar bonds in April-September
* Says will increase yen bond holding by 50 bln yen inOctober-March
* Ends long-term plan to reduce domestic stock holding
By Hideyuki Sano and Takaya Yamaguchi
TOKYO, Oct 18 (Reuters) - Japan's Mitsui Life Insurance hassuspended a plan to increase its stockpile of foreign bondsbecause it expects the value of U.S. bonds to fall as theFederal Reserve moves toward scaling back its economic stimuluslater in the year.
Mitsui is going against market speculation that Japaneseinsurers will rush to foreign bonds in search of higher returnsafter Bank of Japan stimulus announced in April reduced theappeal of domestic bonds.
Japan's fifth-largest life insurer with 6.6 trillion yen($67.51 billion) in assets will rather increase its portfolio ofdomestic bonds by around 50 billion yen, said the executive incharge of investment planning, Sei Sugimoto.
"We had planned to increase foreign bonds but after May 22,there is no hurry to buy them," Sugimoto said, referring to thedate when Fed Chairman Ben Bernanke signalled the Fed wouldlater this year reduce the amount of bonds it buys to stimulatethe United States economy.
The Fed was widely expected to start reducing purchases inSeptember, but the fact that it did not hasn't changed the bigpicture, Sugimoto said at a news conference.
"U.S. bond yields have come down since September but on thewhole they are on a rising trend on the back of a recovery inthe U.S. economy."
Mitsui in April planned to increase its currency-hedgedforeign bond holding by 500 billion to 600 billion yen in thefinancial year ending March 31, but stopped at 200 billion yenbought in the six months to Sept. 30, Sugimoto said.
In the first half of the financial year, Mitsui sold 30billion to 40 billion yen worth of U.S. dollar-denominated bondsand bought euro-denominated bonds, including short-term Italianbonds, Sugimoto said.
Sugimoto did not say whether Mitsui would continue to switchfrom dollar bonds to euro bonds in the second half, but did saythe basic stance is the same.
Mitsui increased its domestic bond portfolio by 50 billionyen in April-September and is likely to buy a comparable amountin October-March, Sugimoto said.
Sugimoto also said a decline in Japanese government bondyields has slowed the pace of Mitsui's yen-bond buying.
"We have three modes of buying: walking pace, bicycle paceand automobile pace. At the moment, we are buying at walkingpace."
Mitsui no longer plans to reduce the amount of domesticshares it owns, as it had done for many years to cut the amountof risk assets on its balance sheet, Sugimoto said.
"We've been reducing shares in line with our mid-term planto reduce risk assets but we've accomplished that objective."