* Equity and bond allocations lower
* Alternatives allocations continue to rise
* Concerns mounting over valuations
By Chris Vellacott
LONDON, Jan 28 (Reuters) - British fund managers have eased back allocations to equities and bonds amid fears a mistimed exit from government stimulus packages could derail the economic recovery, according to a Reuters poll.
Allocations to equities fell to 58.7 percent in January, from 60.3 percent the previous month while bond allocations dropped to an average of 20.4 percent from 21.2 percent.
"A sustained rotation to more defensive areas of the market could occur if investors become concerned about exit strategies," said Chris Paine, associate director of asset allocation at Henderson Global Investors.
Other managers highlighted yawning fiscal deficits in many developed economies and growing sovereign debt risk as among the chief threats to fund performance in the coming year.
"A rise in sovereign debt risk could affect investment grade bonds in particular," said one manager.
The scaling down of equity and bond investment continued to favour alternative investments, which posted an eighth consecutive month of growth in allocations.
Allocations to alternatives increased by more than one percentage point in January to 13 percent.
Materials was the sector cited as "most overweight" by the most respondents included in the January 19-25 poll of ten fund managers.
Meanwhile, exposure to Asia excluding Japan within global equity portfolios fell during the month to 8.9 percent from 9.9 percent as managers begin to fret about excessive valuations in China.
While China and other emerging equity markets outpaced their counterparts in developed economies during 2009, a growing number of analysts are expressing concern about asset bubbles and the increasing likelihood of a correction.
The January poll adopts an adjusted format from previous months that breaks up the allocation categories for the global bond and equities sections into more regions. (Reporting by Chris Vellacott; Editing by Andy Bruce) (For the Hedge Hub blog: http://blogs.reuters.com/hedgehub) (For Global Investing: http://blogs.reuters.com/globalinvesting)