Pimco's Gross sees modest goals in slow recovery

By Ross Kerber

CHICAGO (Reuters) - Top bond-fund manager Bill Gross warned of a slow U.S. recovery in coming years and said investors would do best aiming for modest returns.

The unfolding economic recovery now amounts to "green shoots, but not much more," Gross, co-chief investment officer of bond giant Pacific Investment Management Co, said in an interview at an investment conference in Chicago.

Gross forecasts the U.S. economy will grow a paltry 1 percent to 2 percent annually over the next few years, with stubbornly high unemployment.

In this environment, Gross said, investors should "think stable income." Gross said he favors high-quality corporate bonds that yield 6 to 8 percent. "That's where you should go ... reaching for returns won't be rewarded like it was."

Gross said some stocks would fit the same description. He cited Coca-Cola Co and Procter & Gamble Co as attractive stocks.

"Growth will be subdued," he said in luncheon remarks on Thursday at a conference hosted by Chicago research firm Morningstar Inc. He also forecast unemployment between 7 to 8 percent for years to come. "We won't be able to put all these people back to work."

The U.S. recession has already cost over 5 million jobs since it began in December 2007 and the unemployment rate hit 8.9 percent in April, the highest since September 1983.

Gross manages the Pimco Total Return Fund, which has $150 billion in assets and was the top-selling fund in April, according to recent data from Financial Research Corp. The fund took in $3.9 billion in assets in that month.