Europe's biggest equity investor, Norway's $594-billion oil fund, wants to cut its holding of European stocks and bonds due to poor returns and will seek a bigger exposure to Asia and the Americas, the Norwegian central bank said on Thursday.

The fund, which holds nearly 2 percent of all European shares, also has to adjust to lower real-return expectations and the government must cut back on how much of the oil money it spends if it wants to preserve the fund, Norges Bank, which manages the fund, said.

We are not particularly pessimistic on Europe, we think sometime in the future economic growth will pick up... but a prolonged period of overweighting in Europe is not justified, Norges Bank Governor Oeystein Olsen told Reuters.

The changes, a rare proposal for an investor known for a well-anchored investment strategy, come after the fund's returns have suffered from years of financial turbulence.

Its investment policy, sometimes considered too rigid, has forced it to keep a large portfolio of European assets including sovereign bonds, forcing it to miss out on much of the rapid growth in Asia and Latin America and sit through the continent's debt crisis.

High economic growth in Asia can provide sound returns on investment in that region, even though today's equity prices already reflect expectation of higher growth in Eastern (rather) than in Western regions, Olsen said separately in a policy speech.

The fund, worth $119,000 per man, woman and child in Norway, must now keep 50 percent of its shares and 60 percent of its bonds in European assets while it can invest only 15 percent of its shares and 5 percent of its bonds in Asia and the Pacific.

Olsen said the government should loosen its grip on the fund and allow it to make more of its own investment decisions.

We ask for more flexibility. They should decide the important parameters that impact the long-term returns, but the day-to-day management should be left to us, Olsen said. The ministry should decide where to go... but how to get there should be left to us.

Norges Bank would like to start investing in emerging market government bonds and wants to balance its government-debt portfolio based on size of various economies, and not the size of their bond market, since recent new supply, which realigned the continent's market, has not been of the best quality.

Olsen said the bank has already held confidential discussions with the Finance Ministry since 2010 about some of these changes but has not secured backing for all proposals.

The most controversial proposal, which has not been discussed with the government yet, will be the bank's view that the long-term real annual return expectation should be cut to 3 percent from 4 percent because of shifts in market trends, which would force the government to cut how much of the oil money it spends.

Still, last year's fiscal restraint put the budget near such a level, meaning an adjustment now would not be particularly demanding, Olsen said.

(Reporting by Balazs Koranyi and Camilla Knudsen)