NEW YORK, May 8 (Reuters) - U.S. bond giant PIMCO said

on Wednesday it is increasing its bond exposure in developed

markets outside the United States as inflation could complicate

the shift of the Federal Reserve to lower interest rates.

The $1.9 trillion asset manager expects an easing in central

bank policies to bolster bonds in markets such as Australia,

Canada, the United Kingdom and the euro zone, but is underweight

U.S. fixed income as economic growth in America may continue to

be accompanied by rising price pressures.

"The global economic and market outlook suggests diverging

paths among regions and sectors," portfolio managers Erin Browne

and Emmanuel Sharef wrote in an asset allocation outlook report.

"In fixed income markets, we're adding to our investments in

select countries outside the U.S. where easier monetary policy

this year is likely to boost bonds," they said.

U.S. Treasury yields, which move inversely to prices, have

surged for much of this year as strong economic and inflation

data have defied market assumptions that the Federal Reserve

would soon shift to a less restrictive monetary stance.

Even though Treasuries have rallied this month, benchmark

10-year yields are still up over 60 basis points since the

beginning of the year. Bets on the path of the Fed's policy rate

in futures markets have gone from pricing in over 150 basis

points of cuts in early January to cuts of 44 basis points as of

Wednesday.

PIMCO is overall bullish on corporate debt markets,

particularly securitized credit, but is underweight high-yield

bonds as defaults could rise. It favors U.S. equities to other

markets given continued signs of economic strength.

Still, the prospect of U.S. interest rates remaining high

for longer than previously expected could eventually pressure

areas of the economy that are vulnerable to higher borrowing

costs, such as commercial real estate, private credit and

regional banks, said PIMCO.

"This means that although the factors that have contributed

to U.S. economic resilience appear durable, we can't rule out

the risk of recession," it said.