Aug. 14 (Bloomberg) -- Norway’s sovereign wealth fund, Europe’s biggest stock owner, said the value of its investments rose a record 12.7 percent in the second quarter after shares rallied on signs the global economic slump was easing.

The Government Pension Fund - Global climbed by 270 billion kroner ($45 billion) as measured by a weighted basket of currencies, the central bank said today in Oslo. The 2.39 trillion-krone fund gained 19.5 percent on stocks and 5.1 percent on bonds.

“The positive development in the second quarter has continued into the third quarter,” said Yngve Slyngstad, head of Norges Bank Investment Management, the central bank’s asset management arm. “Since the markets turned in March and up until today the value of the fund has increased by more than 600 billion kroner,” Slyngstad said in a statement.

The fund, which manages Norway’s oil and gas revenue, recovered along with worldwide markets after last year’s plunge in global equities erased gains since it started investing in 1996. The fund added stocks throughout the rout, which paid off in the quarter as the MSCI World Index rallied 20 percent and Europe’s Dow Jones Stoxx 600 Index increased 17 percent.

Stocks Rally

“The second quarter saw a marked improvement in financial markets and there were signs of renewed economic stability,” the bank said in the statement. “Uncertainty about the financial sector subsided, equity prices rose sharply and the credit spread between corporate and government bonds narrowed.”

The fund has raised its stake in shares to 60 percent from a previous limit of 40 percent, which it says will provide better returns over time. The government pumped 40 billion kroner into the fund in the second quarter, the lowest since the last quarter in 2004. The return was 2.1 percentage points above the benchmark set by the Finance Ministry. Norway’s central bank runs the fund, while the Finance Ministry sets guidelines.

Fixed-income management produced an excess return of 3.7 percentage points, while equity management produced an excess return of 0.7 percentage point.

Royal Dutch Shell Plc, Europe’s biggest oil company, was the fund’s largest stock holding at the end of the quarter, valued at 17.2 billion kroner, followed by Nestle SA and HSBC Holdings Plc.

British, U.S. Bonds

U.K. government bonds were the biggest bond holding, at 80.8 billion kroner, while U.S. bonds, formerly the largest holding, came second and German bonds third.

“In both the equity and fixed-income portfolios, the fund has a strategic overweight of European investments relative to the size of the markets,” Norges Bank Investment Management said in the statement. “This means there will be a tendency for large European companies and bond issuers to dominate the list of the fund’s largest investments.”

External management amounted to about 375 billion kroner at the end of the quarter, an increase of 28 billion kroner from the previous quarter. External equity management increased by 54 billion kroner, while external fixed-income management slipped by 26 billion kroner.

The fund is reducing the number of external mandates for fixed-income investments after so-called active management contributed to the fund’s record 633 billion kroner loss last year, wiping out gains since it started investing Norway’s oil revenue 13 years ago.

Overseas Investment

The oil and gas money is invested abroad to avoid stoking domestic inflation. The fund has raised the limit it can hold in any individual company to 10 percent from 5 percent and plans to invest in real estate, as well as add investments in emerging markets such as Russia, India and China.

The oil fund will focus on U.K. real estate and other “Anglo-Saxon” markets when it starts property investments “relatively soon,” Slyngstad said in an interview in Oslo.

Norges Bank’s executive board adopted a revised strategy for the fund’s active ownership in June, which will include greater focus on climate change and water management, it said.

Norway is the world’s fifth-largest oil exporter and the second-largest gas exporter.

To contact the reporters on this story: Vibeke Laroi in Oslo at vlaroi@bloomberg.net; Marianne Stigset in Oslo at mstigset@bloomberg.net

Last Updated: August 14, 2009 06:24 EDT