UPDATE 2-Libya eyes European, US equities after price drop

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By Will Rasmussen

CAIRO Oct 23 (Reuters) - Libya's $65 billion sovereign wealth fund is looking to invest in European and U.S. equities to diversify its portfolio after recent market declines, a member of the board said on Thursday.

"We want to diversify, number one in Europe, number two in the United States, and then in emerging market economies," said board member Farhat Bin Guidara, who is also governor of the Central Bank of Libya.

"We are going more towards (sectors) ... such as pharmaceuticals, telecoms, utilities and food manufacturers," he told reporters on the sidelines of a conference in Cairo.

Europe's benchmark FTSEurofirst 300 .FTEU3index, which has lost 44 percent year-to-date, tumbled to as low as 847.79 on Thursday, within sight of a 5-year low touched two weeks ago.

Major U.S. indexes also ended sharply lower on Wednesday amidst fear of a global recession.

"We are targeting (companies) less affected by the recession," Bin Guidara added, declining to name specific companies.

The Libyan Investment Authority now has about 10 percent of its assets in equities. "We might increase it to 12 or 13 percent in less than six months," the governor said.

That would translate into equity purchases of up to about $2 billion over the period.

The fund could also look at buying stock in banks, he added.

"Some banks are good opportunities for investment, even with the current crisis," he said, declining to name specific lenders.

NO IMMEDIATE PLANS TO RAISE UNICREDIT STAKE

But the Libyan fund does not currently intend to increase its stake in the Italian bank UniCredit (CRDI.MI) beyond its 4.9 percent stake, he added.

"We know a lot about UniCredit, that's why we had been buying stocks from the market," he said. "We were at 0.56 percent, now we are at 4.9 percent, that's enough for now. We might buy in the future but not now."

The Central Bank of Libya, the Libyan Investment Authority and the Libyan Foreign Bank said last week the country had become the second-largest investor in the Italian bank -- after Fondazione Cassa di Risparmio di Verona -- with a stake of 4.23 percent.

Sovereign wealth fund buying has raised political controversy.

Italian Prime Minister Silvio Berlusconi said last week unnamed oil-producing nations may be buying stocks "massively" in Europe and Italy's regulator had asked European Union countries if it was possible to stop them.

Bin Guidara also said the Libyan Investment Authority had $300 million in a portfolio managed by the bankrupt New York investment bank Lehman Brothers.

"We have a lawyer following that. We hope we might recover 60 to 70 percent," he added.

He said he expected inflation in Libya to fall to between 5 and 6 percent in 2009, from 12 percent in 2008.

Libya's gross domestic product would grow 6 percent in 2009, down from 6.5 percent in 2008 on lower oil prices, he added. (Writing by Will Rasmussen; Editing by Hans Peters)