Europe's mutual fund industry grew 14.5% in 2004 as continued improvement in equity markets boosted assets under management to 3.54 million euros, according to a Reuters report citing Lipper.

The roughly 29,200 European-domiciled funds that participated in the survey generated inflows of 98.6 billion euros, or $127.9 billion, with a bulk of the new money invested in equity funds, particularly early in the year.

But a majority of last year's growth can be attributed to market appreciation rather than new assets coming in the door. Stock funds posted total inflows of 46.6 billion, but 20.2 billion of that gain was in the first quarter.

Bond funds were hurt by expectations of rising interest rates in the second half of the year and the overall rebound in stocks. Total inflows into bond funds were 23.2 billion euros, but 4 billion euros in outflows in the latter part of the year pared that number.

Mutual funds domiciled in Luxembourg garnered the largest inflows at 60.4 billion euros, more than doubling the second-largest fund hub, France, which took in 30.1 billion euros. Luxembourg benefited from the increasing popularity of cross-border funds, ones that are managed in one country and sold in other countries.

As for hedge funds, Lipper noted that the European fund industry is likely to continue to benefit from investor appetite for hedge funds in 2005.

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