(Reuters) - Investors increased their holdings in U.S. equity funds over the week to February 26, buoyed by confidence in the economy's resilience and expectations of a Federal Reserve rate cut later this year to stimulate growth.

Dismissing concerns over tariffs, investors acquired a net $19.71 billion worth of U.S. equity funds during the week, registering their largest weekly net purchase since December 25, 2024, according to data from LSEG Lipper.

"The U.S. economy is still in good shape, and we do not think the announced tariffs will necessarily lead to a major negative impact on growth," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

"But we believe market volatility will likely persist, and the recent movement in bonds reaffirmed that quality fixed income should remain an integral part of a resilient portfolio that can help investors navigate uncertainty ahead."

U.S. large-cap funds experienced $20 billion in net purchases, the highest in two months, with multi-cap funds attracting $137 million. However, small-cap and mid-cap funds saw outflows of $545 million and $197 million, respectively.

In U.S. sectoral funds, tech, healthcare and communication services attracted $1.05 billion, $869 million and $518 million respectively, while financial sector funds experienced significant divestments of $1.2 billion.

This week, the S&P 500 and Nasdaq Composite indexes dropped sharply by 2.5% and 5%, respectively, driven down by a decline in Nvidia shares after the company's quarterly report fell short of investor expectations.

Investors, meanwhile, channelled a $49.47 billion into money market funds, which logged their largest weekly net purchase since January 8.

At the same time, U.S. bond funds were in demand for the eighth week in a row, with inflows totalling a net $7.42 billion during the week.

By segment, U.S. short-to-intermediate investment-grade funds, short-to-intermediate government and treasury funds, and general domestic taxable fixed income funds led the way with a net $1.82 billion, $1.56 billion and $1.37 billion, respectively in inflows.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Emelia Sithole-Matarise)