A Reuters survey of fund managers based in Continental European found increasing purchases of Japanese bonds but the main thrust was greater confidence at home reflected in higher weightings of both core and periferal European bonds.

Bettina Mueller, fixed income fund manager at the German-based fund DWS said, "We are feeling more positive about Japan and increasing our weighting there which is quite low, " she said.

"This is based mostly on currency forecasts," she added.

However Mueller advocated buying up European government paper anticipating convergence plays. "We are even going farther afield into eastern Europe," she commented.

Although some managers forecast range trading for U.S. Treasuries most funds surveyed had increased Treasury holdings since September.

"After the Fed move (cuttinginterest rates), there seems to be more potential for political aid to the markets," said one fund manager who asked not to be identified.

"The worst case scenario seems to have been avoided and we are forecasting markets to be improved by the end of the year," he added.

Even so, the manager warned of Europe's lack of liquidity which he said, could spill over into a credit crunch.

Some equity fund managers had a positive outlook for European shares, at least to the extent that they would not be downgraded by as much as the market is expecting.

"We see eight to 10 per cent earnings growth, which is less than the 13-15 per cent analysts see, but more than the markets, which are anticipating zero," said Paribas global head of balanced funds Veronika Schachenmayr-Schlick.

"We are positive now for European equities," she added.

However although Paribas was less negative about South East Asia, Schachenmayr-Schlick said buying was still some way off.

"Falling interest rates are positive and there areindications of stabilisation in South Korea and Thailand," she said.

She was very defensive in bonds, being slightly overweight U.S. and Europe with no clear preference.

"We are playing the short end of the curve and we think there will be a steepening of the yield curve as short term rates decline," she said, adding that in Europe rate cuts were anticipated.

Nine institutions took part in the survey between October 23 and October 28.