TOKYO, May 28 (Reuters) - Japanese institutional investors recommend reducing exposure to equities in June for the first time in three months and increasing cash holdings, according to a Reuters poll.

They also propose slimming exposure to bonds for the third straight month.

Thirteen Japanese securities houses, research institutes and investment advisers participated in the asset allocation poll, conducted on May 25. The figures represent the firms' recommendations rather than actual investment plans.

While interest in the United States remains high, the respondents recommended a paring of holdings of U.S. stocks because of concerns that the market may be too high. At the same time, their weightings for U.S. Treasuries rose, along with those for holdings of British, French and German equities, while they fell for most other European markets.

For a fourth consecutive month, respondents recommended a cutting of exposure to the Japanese equity market and to yen bonds.

A breakdown by asset type shows a 46.2 percent weighting for equities, down 0.5 percentage point from the previous poll; 39.3 percent for bonds, also down 0.5 point; and 14.5 percent for cash, up one point.

While receding concerns of a rate increase in the United States, as well as strong fundamentals and a favourable supply situation, make U.S. and Canadian stocks tempting, many Japanese investors are concerned that North American markets are overbought.

As a result, the weighting for North America slimmed 0.11 percentage point to 45.04 percent of respondents' global equity allocation. Only one of the 13 firms polled recommended raising positions in North American equities, while two proposed cuts. The others recommended sitting tight.

``It's been a fast runup and the feeling that it is overvalued is strong,'' said S.G. Yamaichi Asset Management. ``A small technical correction in the U.S. market would not be odd.''

The three main European markets -- Britain, France and Germany -- will remain popular investment destinations among the Japanese, according to the poll results. Investment in British equities is seen rising 1.15 percentage points to 10.73 percent of global equity allocations. French equities would rise 0.69 point to 5.38 percent, and German equities rise 1.77 point to 9.62 percent.

Investors said they had warmed to the coming introduction of the euro, which will bind the region into a single economic entity.

``The entire continent will shift to Anglo-Saxon capitalism and in the midterm we will see a period of transition in business strategies,'' according to Daiwa Institute of Research. ``Merger-and-acquisition activity will heat up.''

Japanese investors, however, are far less optimistic about their home market, with domestic equities falling 0.92 percentage point to 16.50 percent of the global equities portfolio. The fall marks the first time the Japanese equities weighting has dropped below 17 percent since the poll was started.

Respondents forecast a range of 14,821 to 16,851 for the benchmark Nikkei 225 average.

While respondents expressed optimism that the government's 16.7 trillion yen stimulus package would help the economy and that companies would continue to buy back their own shares, concerns that continuing turmoil in Asia would weigh on stocks and that investors would sell into any rise made it difficult for many to raise their weightings.

``It's difficult to tell where Asia is going,'' said Tokyo Securities. ``But the current difficulties will certainly have an impact in the future.''

As for bond funds, investors seemed prepared make marginal increases in their holdings of U.S. Treasury bonds. The weighting for U.S. debt rose 0.22 percentage point to 48.44 percent

``U.S. long bonds are the most attractive investment in the world,'' said Nikko Securities Investment Trust & Management. ``The dollar will continue to attract investment.''

But Japanese investors cannot say the same about their home market, where yields have dwindled to record lows. Respondents recommended cutting holdings of Japanese government debt for the first time in two months, by 0.33 percentage point to 11.17 percent.

They also recommended buying more European bonds, particularly British and French issues. They see an increase in holdings of British gilts by 0.67 percentage point to 11.11 percent. They also see an increase in French OATS holdings by 0.12 percentage point to 4.56 percent.

But the weighting for German bunds was cut 0.44 percentage point to 13.78 percent.

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