Pimco's Gross says G7 won't drive global growth

NEW YORK (Reuters) - Investors should shun Britain and shy from the debt of other G7 nations as heavy borrowing threatens to curb growth, and shift assets to Asia and developing countries, said Bill Gross, manager of the world's biggest bond fund.

The group of seven industrialized nations have "lost their position as drivers of the global economy" and will likely reel for years from the effects of increasing indebtedness, Gross said in his February investment outlook, posted on the Pacific Investment Management Co website on Tuesday.

The most vulnerable countries are those whose public debt may exceed 90 percent of gross domestic product within a few years, which could slow GDP by 1 percent or more, he said. Of those, Britain is a "must to avoid" because of its high debt, which could devalue the pound, he said.

"Gilts are resting on a bed of nitroglycerin," he said.

Other countries where rising government debt threatens to slow growth -- depicted by Gross within a "ring of fire" -- are Ireland, Spain, France, the U.S., Italy, Greece and Japan.

Gross, in panning British gilts, added that the nation's interest rates are artificially influenced by accounting standards, which last year led to long-term real rates of 1/2 percent and lower.

To Gross, Germany is the safest, most liquid sovereign debt alternative, but he would prefer to invest in Canada where the liquidity and yield is adequate, he said.

Money managers looking for growth should buy assets in Asia and developing countries where there is promise of consumer spending, national debt is low and trade surpluses mean years of reserves, he said. Less risky fixed-income assets should be also concentrated in those regions, but weaker liquidity and less developed financial markets mean most bond money cannot abandon G7 nations, he added.

"Risk/growth-oriented assets (as well as currencies) should be directed towards Asian/developing countries less levered and less easily prone to bubbling, and therefore the negative de-leveraging aspects of bubble popping," he said.

(Reporting by Al Yoon, Editing by Chizu Nomiyama)