U.S. stock, bond fund inflows slowed in week before steep selloff

NEW YORK, Feb 7 (Reuters) - U.S. fund investors' appetite for stocks and fixed income weakened sharply last week ahead of the largest decline in the benchmark S&P 500 in more than six years, Investment Company Institute (ICI) data showed on Wednesday. Some $4.3 billion rolled into U.S.-based stock funds and exchange-traded funds in the week ended Jan. 31, a 65 percent drop from the week before. Bond funds meanwhile took in $9.2 billion, down 38 percent from a week earlier, ICI said. Rising interest rates and concerns about inflation have brought volatility back into the stock market after a long period of calm, leaving investors more skittish after a year in which the S&P 500 rose 19 percent. Yields on benchmark 10-year Treasury bonds, which help set the rate for consumer loans ranging from auto to mortgages, touched four-year highs last week, raising borrowing costs for consumers and companies. "We are reminding clients that inflation is going to come back into the economy and that there are some benefits to having a well-diversified portfolio," said Jeff Carbone, a managing partner at Cornerstone Wealth, a Huntersville, North Carolina based financial adviser with $1.3 billion in assets under management. At the same time, U.S. valuations were looking high before the selloff that cumulated in the 4 percent drop in the S&P 500 on Monday, leaving investors looking at other opportunities, he said. World stock funds took in $7.9 billion during the most recent week, down 20 percent from the week before, according to ICI data. Flows to municipal bonds were $1.8 billion, down from the $2.4 billion that flowed into the category the week before. The following table shows estimated ICI flows for mutual funds and ETFs (all figures in million of dollars):

1/31/18 1/24/18 1/17/18 1/10/18 1/3/18 Equity 12,465 23,390 11,872 17,578 -20,998 Domestic 4,531 12,908 1,719 3,838 -22,057 World 7,933 10,482 10,153 13,740 1,059 Hybrid -178 100 -238 -150 -328 Bond 9,253 15,122 9,261 18,918 7,564 Taxable 7,363 12,659 6,804 15,762 7,055 Municipal 1,890 2,462 2,457 3,156 509 Commodity 386 1,412 45 -2 -305 Total 21,926 40,024 20,940 36,345 -14,067

(Reporting by David Randall; Editing by Meredith Mazzilli)