* Allocation shifts slightly to stocks from bonds
* Some see worries over European debt as overblown
* Fund managers raise euro zone stock weighting, cut U.S. (Adds quote from fund manager)
By Akiko Takeda
TOKYO, May 27 (Reuters) - Japanese fund managers slightly raised their weighting for stocks in May from the previous month's seven-year low on the view that recent market pessimism over Europe's debt woes is overblown, a Reuters survey showed.
But some fund managers are nervous about market volatility and fret that further fallout from the European debt crisis could infect the global economy.
"Market players have recently sold the euro on almost any excuse, including Germany's ban on naked short-selling. To me, these reactions smack of typical overshooting," said Yoshinori Nagano, senior strategist at Daiwa Asset Management.
The average share weighting edged up to 45.0 percent in May from 44.8 percent in April, which was a seven-year low.
"We expect the global economy to gradually move to a sustainable recovery path on improvements in employment and capital spending, centring on the United States. The world's share markets will likely return to an uptrend," said Kenichi Kubo, senior fund manager at Tokio Marine Asset Management.
The average bond weighting dropped to 48.4 percent from a 10-month high of 49.1 percent in April, according to the poll of 11 fund managers taken from May 13-21. The weighting for cash rose slightly to 3.3 percent from 3.1 percent.
During the survey period, global share prices plunged on concerns that Europe's deepening debt crisis might derail a global economic recovery.
The U.S. Standard and Poor's Index has fallen nearly 10 percent so far this month, while Japan's Nikkei share average has dropped more than 13 percent.
The massive fall in share prices has made some fund managers cautious.
"We are reducing risk assets, considering Europe's debt problems and their impact on the global economy. We are also increasing our short positions on the euro to prepare for further deterioration in Europe's fiscal woes," said a fund manager who declined to be identified because of company policy.
But others were more bullish on the global economic outlook.
"At first, the EU wasn't so united in supporting bailout schemes but their political determination is getting strong, reducing the risk of full-scale global financial crisis," said Yuichi Kodama, an economist at Meiji Yasuda Life.
"Financial markets may be too pessimistic about the European situation."
Fund managers increased their weightings on euro zone shares within their equity portfolio to 12.1 percent from 10.4 percent.
Meiji Yasuda's Kodama said the German economy is gaining strength and is expected to benefit further from the recent fall in the euro.
On the other hand, the weighting for U.S. and Canada dropped to a 5-½ year low of 42.0 percent from 43.6 percent in April, while that for the UK slipped to a six-year trough of 6.4 percent from 6.6 percent.
Within bond portfolios, the weighting for North American bonds dropped to match a record low of 25.9 percent hit in February, compared with 26.5 percent in April.
The weighting for euro zone bonds increased slightly to 32.2 percent from 32.0 percent. Japanese investors mostly invest in major euro zone nation bonds, such as German debt, and have limited exposure to southern European sovereign bonds. (Writing by Hideyuki Sano; Editing by Joseph Radford)