* Prime funds pare euro zone holdings by $18 billion in June
* Funds increase investments outside Europe last month
* Funds lose assets partly due to fund redemptions
NEW YORK, July 17 (Reuters) - U.S. prime money market funds reduced their holdings of European bank debt in June as investors favored government securities over money funds at quarter-end, according to a report by JPMorgan Securities released on Wednesday.
Prime money funds' exposure to euro zone banks fell by $18 billion to $200 billion last month. Since the end of 2012, the funds have trimmed their holdings of that region's bank paper by $2 billion, JPMorgan said.
They slashed their French bank exposure by $10 billion, mostly in short-dated certificates of deposits (CDs), to $115 billion in June.
These funds also pared their holdings of other European bank debt last month. They trimmed their ownership of bank paper from Norway, Sweden, Switzerland and the United Kingdom by $30 billion to $219 billion.
"Month-over-month changes in general sector allocations for prime (money funds) mirrored those of March with broad reductions to bank exposures, particularly to European banks," JPMorgan analysts wrote in their latest monthly analysis of prime money funds.
Prime money funds focused their purchases last month in U.S. Treasury bills. They raised their total Treasuries investment by $12 billion or 12 percent to $108 billion.
Some of the money from European bank holdings were moved into bank debt from other regions, particularly Canada, where funds increased their stakes by $16 billion in June.
Much of the increased investments in Canadian bank debt was in the form of floating-rate CDs on fears over rising global interest rates after the Federal Reserve signaled it might shrink its unprecedented bond purchase program later this year.
"This increase likely speaks to available supply as floating-rate note issuance has been running relatively strong on the prospect of rising rates," the JPMorgan analysts said.
Worries over less Fed stimulus caused a dramatic sell-off in the U.S. bond market, resulting in the worst quarter for U.S. Treasuries in 2-1/2 years and investors scrambling out of bond funds which they had poured money into earlier this year.
Prime money funds, tracked by JPMorgan, lost $15.1 billion or 1.05 percent in assets in June, partly due to fund operators needing cash to meet a surge in redemptions.