* Overall equity holdings at 44.7 pct, highest since Jan
* Euro zone debt exposure falls to 50.6 pct, lowest since Aug 2016
* Investors add to UK debt, sell UK stocks
* For poll data: reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/asset-allocation-polls
LONDON, May 31 (Reuters) - European asset managers cut holdings of U.S. stocks in May to the lowest in 10 months, citing pricey valuations and Washington's political wobbles, instead boosting holdings of European and emerging market equities.
Participants in Reuters' survey of 14 European asset managers raised their overall equity exposure to 44.7 percent - the highest level since January - while also upping fixed income allocations to a six-month high of 40.4 percent. They funded this by cutting holdings of cash and property, the poll showed.
U.S. stocks are seen as expensive after hitting record highs on bets that Trump's stimulus pledges would lift growth in the world's biggest economy. The president, beset by questions over his administration's ties with Russia, has promised "massive" tax reductions but has yet to put forward legislation.
Conducted between May 15-30, the poll showed that within equity portfolios, exposure to U.S. stocks fell to 36.1 percent, euro zone equities rose to 34.7 percent and holdings of emerging Europe jumped to 3.5 percent - the highest since September 2016.
Asset managers were unanimous in their expectation that continental European equities still had room to rise after pro-EU centrist Emmanuel Macron defeated far-right opponent Marine Le Pen in the French presidential election on May 7.
"Now that the political risk in France has diminished, investors have become much more optimistic about the future performance of European equity markets," said Jan Bopp, asset allocation strategist at Bank J Safra Sarasin.
"For a long time, political uncertainties have made foreign investors in particular reluctant to invest in the Eurozone, leading to a situation where they have been significantly undervalued compared with U.S. equities," he added, saying economic data for the bloc was also looking much better.
THE STERLING QUESTION
The poll also found that investors trimmed holdings of British stocks to 6.7 percent in the run-up to a snap parliamentary election on June 8.
UK equities have enjoyed a fairly steady rally since Britain's vote to leave the European Union nearly a year ago triggered a slide in sterling, benefiting bluechip firms that make large proportions of their profits overseas.
But the pound has risen as much as 3.8 percent versus the dollar since Prime Minister Theresa May's called the election on April 18, causing the FTSE 100 index to plateau.
Opinion polls initially pointed to a commanding majority for May's Conservatives, but her lead has slipped sharply in recent weeks and the latest projection by polling company YouGov suggests she could fall short of a majority.
Sixty percent of investors in the Reuters poll predicted a bigger Conservative majority would lead to a stronger pound by giving May a stronger hand in forthcoming Brexit negotiations. But others reckoned such an outcome could weaken sterling.
"(The pound) at the current level is now discounting all the good news we can possibly foresee in the medium term," said Matteo Germano, global head of multi asset investments at Pioneer Investments.
"The result of UK elections cannot add more upside to the currency, as if the Tories win with a large majority they're likely to have hands free on the negotiation and might continue to call for a hard Brexit as they've done so far," he added.
Across fixed income allocations, fund managers added to their exposure of British debt, raising it to 2.1 percent, while the collapse of the U.S. reflation trade saw holdings of Treasuries rise to 24.4 percent.
Investors also bought Japanese fixed income, which rose to 2.2 percent. The gains came at the expense of euro zone debt, which saw holdings fall to 50.6 percent, the lowest since August 2016.
FEAR, WHAT FEAR?
Asked whether volatility, which has slumped to historic lows in recent weeks, posed a risk to portfolios, two-thirds of fund managers saw it as an advantage. But a third were sceptical, seeing the lack of volatility as a sign of future trouble.
"We consider this to be a risk because it entices market participants to ignore fundamentals, and particularly downside risks, which means that risk premia are too low to compensate for future drawdowns," said Raphael Gallardo, strategist at Natixis Asset Management.
On the previous occasions when volatility was this low - in 1993-94 and 2006-07 - major market dislocations followed, in the form of the 1994 U.S. bond market rout and the 2008 global financial crisis.
Asked what risks they saw ahead, fund managers voiced concerns about sudden monetary tightening in China or slower economic expansion in the world's second largest economy.
(Additional reporting by Maria Pia Quaglia Regondi in Milan; Editing by Mark Trevelyan)