UPDATE 1-U.S.-based emerging market stock funds attract most cash since Jan 2018 -Lipper

 (Adds details on investor positioning and challenges in
emerging markets)
    By Trevor Hunnicutt
    NEW YORK, Jan 24 (Reuters) - U.S. fund investors emboldened
by cautious monetary policy are adding stakes in emerging-market
stocks at the fastest pace in about a year, Lipper data showed
on Thursday.
    More than $2.6 billion flowed into U.S.-based stock mutual
funds and exchange-traded funds (ETFs) that invest in markets
from China to Mexico and South Africa. That is the most cash
into those funds since the last week of Jan 2018, according to
the research service.
    Federal Reserve Chairman Jerome Powell and other U.S.
monetary policy officials have made it clear in recent weeks
that they are ready to stop raising interest rates and
tightening lending conditions, a salve to investors in
speculative assets.
    That caution on further U.S. rate hikes could leave lending
conditions loose for indebted developing economies and cap gains
in the dollar, which rises when policymakers hike rates and,
consequently, increase returns for foreign investors.
    DoubleLine Capital LP chief executive Jeffrey Gundlach, for
instance, said on a Jan. 8 webcast that he expected emerging
markets to outperform the S&P 500 in the near future.
    Other investors have been rotating from U.S. stocks to
international markets where equities can be bought for lower
prices, relative to earnings, and China has been actively
stimulating its economy.
    All that has helped overshadow more troubling factors,
including uncertainty around U.S.-China trade talks and strife
in Venezuela, where opposition leader Juan Guaido has declared
himself interim president in the boldest challenge in years to
socialist Nicolas Maduro.
    "It looks tempting to dip into EM risk," HSBC analyst Murat
Ulgen said in a Jan. 16 note, referring to emerging markets. But
the regions still face weakening growth, high leverage and a
continuing withdrawal of global liquidity, he added. "We do not
think the clouds of 2018 have cleared yet, so we caution against
extrapolating the recent bullishness too much further."
    In other Lipper data for the week, real estate sector funds
pulled in the most cash since August, precious metals
commodities funds attracted a seventh straight week of cash and
loan-participation funds faced a 10th consecutive week of
withdrawals.
    About $1 billion moved from financial stocks and into
technology sector funds as earnings season kicked off with mixed
results from banks.
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:
 Sector                    Flow Chg  % Assets  Assets     Count
                           ($blns)             ($blns)    
 All Equity Funds          3.458     0.05      6,820.357  12,183
 -Domestic Equities        0.947     0.02      4,839.089  8,656
 -Non-Domestic Equities    2.511     0.13      1,981.267  3,527
 All Taxable Bond Funds    0.627     0.02      2,749.643  5,992
 All Money Market Funds    0.838     0.03      2,919.954  1,004
 All Municipal Bond Funds  0.834     0.19      431.572    1,415
 
 (Reporting by Trevor Hunnicutt; 
Editing by Sandra Maler and Sonya Hepinstall)