UPDATE 2-Eyeing future, Norway oil fund cuts Europe stakes again

* Sold UK, French, Spanish govt debt

* Raised exposure to US, Japan, Mexico, South Korea, Russia

* Increased share of stocks in portfolio at expense of bonds

* CEO says long-term view on European equity positive

OSLO, Nov 2 (Reuters) - Norway's $660 billion sovereign wealth fund continued its long-term plan to cut investments in Europe in the third quarter, slashing its holdings of Spanish and French debt just as those countries try to recover investors' trust.

The oil fund, one of the world's biggest investors, is permanently reducing Europe's share in its portfolio, instead building up its holdings in fast-developing markets to reflect where it sees the strength of the world's economy in the years ahead.

But by cutting its holding of French, Spanish and British government debt by a combined 16 percent - or 3 billion euros - the fund runs counter to other investors who are warming to some of Europe's most indebted economies amid efforts to solve the crisis.

The fund also kept its holdings of debt issued by Greece, Ireland and Portugal - all looking for ways to exit international bail-out schemes - close to nil.

``There is a huge strategic change in the fund right now on the fixed income side,'' Yngve Slyngstad, the fund's chief executive said. ``We're buying in the currencies according to a weight against GDP; this means over time a very large shift in currency allocation of the fund.''

The fund, which holds $130,000 for each of Norway's 5 million people, has instead lifted its fixed income exposure in the United States, Japan, Mexico, South Korea and Russia on instructions from the government to rebalance its portfolio to better reflect shifts in the global economy.

``This change has nothing to do with a pessimistic view on Europe,'' Slyngstad said. ``Our view on its equity market is actually quite positive.''

``We believe that this euro crisis is a crisis of opportunity, and that means that in the horizon we're talking about, ten years or longer, you could potentially have a good development in the European equity markets,'' he added.

Global investors boosted equity holdings to their highest in six months in October but unlike Norway, they also lifted their holdings of euro bond holdings, a Reuters poll showed this week. .

The survey of 46 funds in the United States, continental Europe, Britain and Japan showed investors grew increasingly confident that the worst of the euro zone has passed and also preferred stock on efforts by major central banks to bolt interest rates to near zero.

But Europe's economies will trail the rest of the world for years to come, the International Monetary Fund said earlier this month.

The euro zone will grow by just 0.2 percent next year, behind a 3.6 increase in global output and also behind the 1.5 percent rate for advanced economies, the IMF added.


The fund, Europe's biggest equity investor, has been gradually pulling out of euro zone government bonds, especially those on the bloc's periphery, and the government said it could take years for it to finish the shift.

By the end of the shift, European investments in its entire portfolio should be cut to 41 percent from 54 percent at the start of 2012, while Asia-Pacific's share will rise to 19 percent from 11 percent.

In the third quarter, the fund returned 4.7 percent on its investments in the quarter, improving on a second quarter loss of 2.2 percent and lifted the share of stocks in the portfolio to 60.3 percent from 59.6 percent three months earlier.

Among equities, Nestle replaced Royal Dutch Shell as the fund's biggest holding with a holding worth $5.2 billion and Apple switched places with HSBC for the third spot.

The Norwegian fund, which manages the country's surplus oil revenue, is expected to grow to 3.793 trilllion crowns ($664 billion) by the end of this year and 4.281 trillion crowns ($750 billion) by the end of 2013.