NEW YORK, Dec 10: Big money market funds in the US are rushing to eliminate Asian banks from their portfolios following a slip in the credit ratings of several Japansese and South Korean banks.

Though there is little chance any funds will suffer losses large enough to ``break the buck'', or knock their share prices, some may suffer small losses as they clean up their portfolios before the end of the year, fund managers and analysts said.

For funds with substantial holdings in South Korean banks and Japanese bank securities, the question is whether to dispose off the securities at a loss, or hold them until maturity, typically no more than a few months.

Alliance Capital Reserves held more than six per cent of its 5.7 billion dollar assets in securities issued by the Industrial Bank of Korea and Korean Development Bank. It had additional 12 per cent of its assets invested in securities from Sumitomo and other Japanese banks.

A company spokesman said the South Korean Holdings had already made their final payments to the fund, but he declined to disclose how much of the fund's assets were currently invested in Japanese bank securities. Money-market funds are mutual funds that typically hold `safe', short-term securities such as bank commercial paper and certificates of deposit. Most individual investors view them as substitutes for bank savings accounts because they have higher yields and yet are generally low risk.

However, many fund firms have been reaching for extra yield by investing in foreign-bank debt and in light of the economic turmoil in Asia, some have been reassessing their exposure to Asian bank debt. At Charles Schwab, which holds more than 48 billion in it money funds, Japanese bank securities now represent about two per cent of the total assets in the biggest taxable money fund as compared to four per cent earlier this year.

Stephen Ward, chief investment officer at Charles Schwab says he has been selectively cutting back the fund's exposure to Japan, keeping only top-rated names such as bank of Tokyo Mitsubishi.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.