A mid-month rally on Wall Street prompted investors to sock a net $3 billion into mutual funds in October, but the gains were largely dismissed as modest and analysts suspect investors will continue to shy away from equities for months to come, according to a report issued last week by Lipper.

The inflows were driven primarily by the best one-month gain on the Dow Jones Industrial Average since January of 1987. Still, investors, who are weathering the longest bear market in 60 years, have been draining assets from funds for months. In July, for example, stock funds suffered record outflows of $52.6 billion, and analysts said October’s market gains were simply not enough to lure investors back.

"Investors took a ‘show me’ stance last month, effectively asking the market to prove that it was finished melting down," said Lipper analyst Don Cassidy. "In terms of time elapsed, which weighs heavily on emotions, fund investors are literally in uncharted territory now. Thus, their very cautious response to the major October rally is understandable."

International funds posted gains of about $1 billion in October, following modest inflows in September. Income funds gained nearly $1.2 billion, which analysts attributed to caution among investors about equity investing. And mid-cap core funds, relatively strong performers in recent months, garnered $1 billion in assets, Lipper said.

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