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U.S. fund managers' stock allocations edge up in May -poll

NEW YORK, May 30 (Reuters) - U.S. fund managers slightly increased their recommended stock holdings and pared back bond allocations in May, a Reuters poll showed on Friday.

The recommended rise in stocks, to an average of 56.5 percent of a global balanced portfolio, marked the largest two-month increase since December, although it was around that level at the start of the year.

Exposure to U.S. stocks was a tad lower than in April, reflecting caution as the S&P 500 index marched to record highs.

Fixed-income allocations have declined since January despite the longest rally in longer-dated U.S. Treasury bonds in many years. The difference has been parked in cash, according to the poll of 12 firms conducted May 12-28.

That, along with the absence of any major change within the overall recommended equity allocation, suggests that value investors remain cautious despite very low volatility in financial markets.

The S&P 500 rose 30 percent last year and is up over 3 percent this year, hitting another record closing high on Thursday.

"If you look underneath at small-cap indices you find that they are not following suit. The market advance is getting narrow and it argues for caution," noted Alan Gayle, portfolio manager at RidgeWorth Investments in Atlanta, Ga.

The Russell 2000 index, which tracks small-company stocks, is down 2 percent on the year.

The U.S. Treasury market, on the other hand, has had a stellar year so far, catching many traders and investors off guard. But the poll suggests this has been a largely institutional trade within fixed-income.

The recommended bond allocation fell to its lowest since April 2013, although there was a slight rise in U.S. Treasuries in May. Treasury yields have plummeted from 3.0 percent at the start of the year, to 2.5 percent on Friday.

(Reporting by David Randall; Polling by Diptarka Roy and Swati Chaturvedi; Editing by Ross Finley and Susan Fenton)