* Many funds see risk of further losses in markets

* Gulf earnings may be downgraded further as austerity hits

* But funds now underweight on equities, little room to cut more

* Qatar banks seen offering attractive valuations, dividend yields

* Less bearish on regional fixed income

By Celine Aswad

DUBAI, Jan 31 (Reuters) - Many Middle East fund managers expect to start rebuilding their regional equities holdings in the next few months and have become less bearish towards bonds, a monthly Reuters survey shows.

The survey of 14 leading fund managers, conducted over the past 10 days, does not suggest funds are heavily bullish on stocks; many see a risk of further losses as austerity policies, adopted by governments in response to low oil prices, weigh on economies.

But the survey does suggest that funds have gone so far underweight on equities that they feel there is little room to continue cutting allocations, and that the next major change in allocations will be to increase them.

Forty-three percent of respondents expect to raise their Middle East equity allocations in the next three months, while 7 percent expect to cut them.

That is little different from last month's survey, when 50 percent anticipated increasing equity exposure and 14 percent expected to reduce it.

"Volatility in the international markets increased pressure on oil prices, which dropped to levels below many of the Gulf countries' conservative average crude price assumptions used for their 2016 state budgets," said Mohammed Ali Yasin, managing director at Abu Dhabi's NBAD Securities.

But he added, "We believe the first quarter of 2016 is an opportunity to build a portfolio based on value stocks with low price-to-equity values and high dividend yields."

Sachin Mohindra, portfolio manager at Abu Dhabi's Invest AD, said that while he expected markets to remain weak and volatile over the next quarter, there would be bright spots in some companies that were resilient to the economic downturn.

The survey also shows managers becoming somewhat less bearish on fixed income, after January's global market volatility appeared likely to make the U.S. Federal Reserve more cautious about tightening monetary policy.

Fourteen percent of fund managers now expect to reduce their allocations to regional fixed income and 7 percent to increase them, compared to ratios of 36 percent and zero last month.

UAE, QATAR

The United Arab Emirates remains by far the favoured equity market among its peers in the region. Fifty-seven percent of managers expect to increase exposure there and 7 percent to reduce it, compared with 71 percent and zero in December.

Qatar also looks like a major beneficiary of any rebuilding of equities positions. Forty-three percent expect to increase their Qatari allocations, the highest level since February 2014, and 7 percent to reduce them; last month, the figures were 36 percent and 7 percent.

"We are increasing our allocation in the regional banking sector, especially in Qatar, because they offer attractive valuations and high dividend yields," said Muhammed Shabbir, head of equity funds at Dubai-based Rasmala Investment Bank.

In many sectors and markets, however, earnings growth has become a major concern as companies are forced to adapt to governments' austerity measures, such as cuts in electricity, gas feedstock and fuel prices.

"So far corporate earnings announcements by regional companies have largely lagged behind consensus estimates," said Vijay Harpalani, fund manager at Dubai-based Almal Capital. "We believe there is an increased likelihood for further earnings downgrades for fiscal year 2016 and beyond."

Managers remain ambivalent about Saudi Arabian stocks, with 29 percent planning to raise their allocations and 21 percent to cut them. In the last survey, they were equally split towards the Saudi market.

They have also become somewhat less positive about the Egyptian stock market, where many see a risk of a currency devaluation soon. Twenty-one percent now expect to raise their allocations in Cairo and 7 percent to cut them, compared to 29 percent and zero last month.

SURVEY RESULTS

1) Do you expect to increase/decrease/keep the same your overall equity allocation to the Middle East in the next three months

INCREASE - 6 DECREASE - 1 SAME - 7

2) Do you expect to increase/decrease/keep the same your overall fixed income allocation to the Middle East in the next three months

INCREASE - 1 DECREASE - 2 SAME - 11

3) Do you expect to increase/decrease/keep the same your equity allocations to the following countries in the next three months

a) United Arab Emirates

INCREASE - 8 DECREASE - 1 SAME - 5

b) Qatar

INCREASE - 6 DECREASE - 1 SAME - 7

c) Saudi Arabia

INCREASE - 4 DECREASE - 3 SAME - 7

d) Egypt

INCREASE - 3 DECREASE - 1 SAME - 10

e) Turkey

INCREASE - 0 DECREASE - 3 SAME - 11

f) Kuwait

INCREASE - 2 DECREASE - 2 SAME - 10

NOTE - Institutions taking part in the survey are: Ahli Bank Oman; Al Mal Capital; Al Rayan Investment LLC; Amwal Qatar; Arqaam Capital; Emirates NBD; Global Investment House; Invest AD; National Bank of Abu Dhabi; NBK Capital; Schroders Middle East; The National Investor; Union National Bank; Rasmala Investment Bank.

(Editing by Andrew Torchia) ((Celine.Aswad@thomsonreuters.com;))

Keywords: MIDEAST INVESTMENT/SURVEY