The 10 biggest prime U.S. money market funds cut their holdingsof debt issued by euro-area banks by $8.3 billion in May asconcerns mounted that the 17-country currency union could breakup.

The funds reduced holdings of Dutch banks by $3.3 billion lastmonth, while those in German banks declined by $2.9 billion and inFrench banks by $2 billion, according to data compiled byBloomberg. Funds increased holdings issued by Japanese, U.S. andU.K. banks by a combined $11.2 billion.

Holdings of debt from European banks, including those outsidethe euro region, have fallen every month since the end of January,with a combined decline of $20 billion over the period to $178billion. Elections in Greece have fueled concern that the countrymay exit from the euro, and Spain this month requested as much as100 billion euros ($126 billion) from European Union rescue fundsto recapitalize its banks. The country's credit rating this weekwas cut three steps by Moody's Investors Service, which cited thenation's debt burden.

Boston-based Fidelity Investments, the largest U.S. provider ofmoney funds, reduced holdings of European bank securities in thepast two months and cut the weighted average maturity of thoseholdings to two days, Nancy Prior, president of the firm's moneymarket group, said in a telephone interview on June 8.

“That goes hand-in-hand with having increased liquidity,” shesaid.

Pittsburgh-based Federated Investors Inc.'s Prime ObligationsFund had the highest proportion of euro-area bank holdings at 21percent of assets at the end of May. It was also one of two fundswith an annualized yield of 0.19 percent, the highest among thefunds surveyed. The other fund was the Western Asset InstitutionalLiquid Reserves, which is 7.9 percent invested in euro-areabanks.

Three funds, including JPMorgan's Prime Money Market Fund, hadan annualized yield of 0.01 percent. The JPMorgan fund had 8.8percent of assets in euro-zone bank paper. The Vanguard Prime MoneyMarket Fund was the only fund with no European bank holdings.

Melissa Ryan, a spokeswoman at Federated, declined to comment onEuropean bank exposure. Mary Athridge, a spokeswoman forBaltimore-based Legg Mason Inc., Western Asset Management Co.'sparent, said European holdings at the Western fund wereconcentrated in Northern Europe and Germany and had been reduced by60 percent over the past 12 months.

Liquidity Pool

In addition to selling commercial paper, certificates of depositand repurchase agreements to money funds, banks can obtainshort-term funding from central banks, inter-bank repurchaseagreements or increase deposit rates to attract more money fromindividual customers. Banks can also hold cash-like instruments ina liquidity pool to meet redemptions.

The survey included Fidelity Cash Reserves, JPMorgan Prime MoneyMarket Fund, Vanguard Prime Money Market Fund, FidelityInstitutional Prime Money Market Portfolio, Fidelity InstitutionalMoney Market Portfolio, BlackRock TempFund, Federated PrimeObligations Fund, Schwab Cash Reserves, Western Asset InstitutionalLiquid Reserves and Dreyfus Cash Management Fund.

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