US equity funds see upbeat demand on rate cut expectations

(Reuters) - Investors hoovered up U.S. equity funds in the week to July 3 as data indicating a softening economy and U.S. Federal Reserve Chair Jerome Powell's dovish commentary solidified rate cut expectations.

U.S. equity funds secured a net $8.62 billion in inflows during the week, after witnessing about $16.2 billion worth of net purchases a week ago, LSEG data shows.

Weaker economic reports on manufacturing and service activities and jobs data reflecting easing labor market conditions, bolstered hopes that the Fed would start easing policy in September.

A softer reading on inflation last week, also supported investor appetite. Fed Chair Powell said on Tuesday that the U.S. is back on a "disinflationary path", reinforcing expectations about upcoming rate cuts.

Investors sought large-cap funds in particular as they drew inflows of about $8.46 billion, extending net purchases into a second week.

Multi-cap funds also witnessed $932 million worth of inflows, but investors pulled $1.19 billion and $791 million out of small-cap, and mid-cap funds respectively.

U.S. sectoral equity funds, however, suffered $868 million worth of outflows, with investors divesting tech and healthcare funds worth $572 million and $538 million, respectively.

U.S. bond funds remained popular for a fifth week in a row as they drew in about $5.72 billion, the most in three weeks.

Among U.S. bond funds, general domestic taxable fixed income, and short/intermediate investment-grade funds stood out with $2.87 billion and $2.29 billion worth of net accumulations.

Simultaneously, money market funds garnered $23.6 billion worth of inflows, the most in four weeks.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Alexander Smith)