August 12, 2011 / 8:52 AM / 8 years ago

UPDATE 2-Norway wealth fund dips after weak Q2 as crisis weighs

* Fund market value rises to NOK 3.1 trillion in Q2

* Value of fund has declined since then

* Fund head concerned about long-term U.S. fiscal situation

* FinMin eyes long term; says fund to weather market turmoil

(Adds detail, quotes)

By Walter Gibbs and Gwladys Fouche

OSLO, Aug 12 (Reuters) - Norway’s sovereign wealth fund has shed $20 billion in six weeks, data showed on Friday, reflecting a gloomy economic backdrop abroad that two days earlier prompted the country’s central bank to backtrack on planned interest rate hikes.

The head of the wealth fund — one of the world’s largest and a major investor in shares as well as U.S. debt — told Reuters he was concerned about the long-term fiscal situation in the United States following last week’s S&P downgrade, which however had not affected its investment strategy.

The central bank-run fund, which parks the Norwegian state’s revenues from oil and gas activities abroad to save for future generations, posted a return on investments of 0.3 percent in the three months to June, 0.1 percent less than its benchmark portfolio, it said.

On Friday the fund was worth 2.976 trillion Norwegian crowns, according to its website, down from 3.111 trillion ($561 billion) on June 31.

It also said the current tumult in financial markets and low yields on government bonds meant it would find it difficult to meet its target of a four percent return on investments.

The broad market selloff has accelerated since Standard & Poor’s unprecedented downgrade of its U.S. rating to AA+.

That action “(does) not affect our investments but we do share the concern about the long-term fiscal situation in the U.S,” the fund’s chief executive Yngve Slyngstad said.

On Wednesday Norway’s central bank said mounting debt and growth pressures abroad has persuaded it to scrap firm plans for an interest rate hike, keeping borrowing costs at 2.25 percent and giving no hint when it might raise them.

The fund said some 60.5 percent of its investments were in stocks at the end of the second quarter — when rising bond prices had outweighed a slump in equities — compared with 61.3 percent three months earlier.

“Signs of weaker economic growth in the U.S. and Europe and fears of a contagion from the European sovereign debt crisis reduced investors’ risk willingness in the quarter,” Slyngstad said in a statement.

The Norwegian finance minister, who is ultimately responsible for the fund’s management, said the fund could weather the current market turmoil and expect to be rewarded with a higher return over time.

“Therefore it’s important that the investment strategy is stable over time. At the same time, we must be prepared for considerable gyrations from time to time,” Sigbjoern Johnsen said in a statement.

The SWF said Nestle , Sanofi and Roche were its most profitable investments in the second quarter. The worst performers were HSBC , JPMorgan Chase and Vestas .

The Norwegian crown strengthened against several of the currencies the fund invests in, reducing its market value by 48 billion crowns, it said.

(Additional reporting by Terje Solsvik in Oslo; Editing by John Stonestreet)

$1 = 5.512 Norwegian Krones Editing by John Stonestreet

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