Fund managers rebuilt their equity holdings in December to one of the highest points this year on signs of a swifter economic recovery, a Reuters poll showed on Wednesday.

The poll, which surveyed 13 U.S.-based fund management companies between December 10 and 21, showed firms boosting their equity allocations for the fourth month in a row to an average of 65.0 percent. That is a gain of 2 percentage points since November.

The high for the year was in February, when firms held 66.2 percent of their assets in equities, though that was based on only 11 U.S.-based fund management firms.

The Reuters poll also showed money managers scaling back their exposure to bonds for a fourth consecutive month.

U.S. stock markets have been in a steady rally going into 2011, buoyed by relatively attractive valuations, improving economic indicators and expectations for double-digit growth in corporate earnings to continue next year.

On Tuesday, the Standard & Poor's 500 Index <.SPX>, the benchmark gauge of U.S. stocks, closed up 0.6 percent to 1,254.60 in New York, its highest close since September 19, 2008, just a few days after New York-based Lehman Brothers filed the world's biggest bankruptcy.

Growing confidence in the economy seems to be on a sure footing, said David Goerz, chief investment officer, at HighMark Capital Management where he oversees $17 billion in assets. Economic releases continue to come in robust. Investors are behind and what we're seeing is some catch-up.

Although equities have appeared cheap when compared with U.S. Treasuries, they have been bypassed throughout the year for government bonds as persistent concerns over the euro zone debt crisis fed risk aversion.

But mounting signs of a sustainable recovery have turned sentiment around.

Earlier this month, economists and investors ratcheted up their forecasts for gross domestic product growth for 2011 following a tax-cut deal in Washington. The extension of the Bush-era tax reductions plus a payroll-tax cut dealt a blow to U.S. Treasuries, driving up investor expectations for economic growth and the federal budget deficit, both of which point to higher interest rates.

Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati, said: People are coming off the sidelines and buying stocks. He is predicting substantial expansion of price/earnings ratios in the United States and S&P 500 growth of 20 percent in 2011.

Responding to attractive valuations and growth forecasts, fund managers on average trimmed back their bond allocations to 27.9 percent of their portfolios in December, compared with 30.2 percent last month, the Reuters poll showed.

The S&P 500 has rallied to two-year highs in December, up almost 23 percent from the year's closing lows.

U.S. stock markets have recently shaken off bad news from debt-laden European countries. In the past month, both Fitch and Moody's downgraded Ireland's credit rating, with Moody's taking it down five notches to Baa1. Moody's also warned it may cut its rating on debt-ridden Portugal due to weak growth prospects and high borrowing costs, after it put Spain and Greece on a similar review for possible downgrade. Fitch said on Tuesday there was a growing probability it would cut Greece's credit rating to junk.

Perhaps hedging some risks and adjusting to fluctuations in the market, investors kept their cash allocations unchanged.

(Polling by Bangalore Polling Unit; Editing by Jennifer Ablan, Leslie Adler and Stephen Nisbet)