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China funds cut suggested equity allocations as hopes for recovery evaporate: Reuters poll

Investors look at information displayed on an electronic screen at a brokerage house in Shanghai, April 14, 2014. REUTERS/Aly Song

SHANGHAI (Reuters) - Chinese fund managers will cut the proportion of their portfolios invested in stocks over the next three months, following July's upward trend, as hopes for a quick economic recovery falter, a Reuters poll shows.

"China's recovery is not at all stable. It is still possible that things will get worse, so market sentiment is volatile," a fund manager based in south China said.

Chinese fund managers reduced their suggested equity allocation for the next three months to 77.2 percent from 81.9 percent a month earlier, according to a poll of nine China-based fund managers conducted this week.

Funds sharply increased their suggested bond allocation to 10.1 percent from 4.5 percent a month ago, while lowering their cash weightings to 12.7 percent from 13.6 percent in July.

Growth in China's vast factory sector slowed to a three-month low in August as output and new orders moderated, a preliminary private survey conducted by HSBC showed last week, heightening concerns about increasing softness in the economy.

Eight of the fund managers said their most serious short-term concern was the cooling of the domestic real estate market, which could have knock-on effects on the financial system and potentially cause a spike in bad debts.

This month, suggested allocations to financial services and real estate fell sharply, while consumer and electronic technology stocks were in favor.

The average recommended allocation for financial services fell to 14.8 percent from 18.5 percent last month, while recommended weightings for real estate shares dropped to 6.1 percent from 10 percent in July.

For electronics, the average recommended allocation rose to 16.1 percent from 14.4 percent last month, as weightings for consumer goods rose to 23.7 percent from 20.4 percent in July.

(Reporting by David Lin and Engen Tham; Editing by Jacqueline Wong)