PIMCO cuts euro exposure after Cyprus deposit levy plan

PIMCO, one of the world's biggest money managers, has reduced allocations to the euro in response to a planned levy on bank deposits in Cyprus, and is rethinking forecasts of when the bloc will begin its recovery, a senior executive said.

Saumil Parikh, managing director and member of the firm's investment committee, said the proposed terms for a banking bailout in Cyprus, which include the levy, "suggest a more bumpy road for Europe."

"We've reduced our allocations to European currency (in the last 24 hours), because it makes sense to think about this as not only a policy mistake but also a recognition that the euro is far from being a perfect reserve currency," Parikh told Reuters in an interview in London on Tuesday.

Parikh said he had not made major changes to overall allocations since the planned levy was announced, but said imposing a levy on depositors would represent "a significant departure" in euro zone policy from other reserve currencies.

"The entire capital system is based on the trust and the belief that once you put money in a bank as a deposit, it's risk free. So that has significant implications for foreigners investing in Europe," he said.

"Investors need to change or adjust their view for what they think is a normal risk premium for European assets, as opposed to U.S. assets, Japanese assets or UK assets," he added.

The development has increased the appeal to investors of "the very few clean triple A countries" as safe havens, namely Australia, Canada, Switzerland and Singapore, he said.

Pacific Investment Management Co, or PIMCO, is a unit of European financial services company Allianz SE and had $2 trillion in assets as of the end of last year, according to the firm's website.

(This story is corrected to remove "zone" from first paragraph)

(Reporting by Chris Vellacott; Editing by David Holmes)