UPDATE 2-S.Korea's pension fund to cut U.S. bond holdings

(Adds detail, background)

SEOUL May 29 (Reuters) - South Korea's National Pension Service will reduce U.S. government bonds and more risky assets such as stocks in its portfolio, while raising overall debt holdings by buying bonds of other foreign governments.

The Welfare Ministry, which oversees the fund, said that the slumping economy and growing risks from financial assets had shifted its focus to stable returns and that the fund would resume foreign investments in its five-year portfolio from the second half.

"The National Pension Service will reduce the portion of U.S. bonds in foreign bond holdings," it said in a statement, adding that it would make other investments to diversify its portfolio.

U.S. government debt accounts for 83 percent of its foreign bond holdings worth $6.5 billion.

The fund, which is expected to manage 432 trillion won ($344 billion) by the end of 2014, has lowered its five-year return target to an average 6.5 percent from last year's 7.5 percent.

The NPS' chief executive said last week that it plans to resume foreign investments next month and raise exposure to domestic shares. [ID:nHKG373635]

Under the adjusted five-year investment plan, both foreign and domestic stocks will make up more than 30 percent of its portfolio, down from the previous target of more than 40 percent.

By comparison, the NPS will increase holdings of both overseas and domestic bonds to less than 60 percent from the earlier plan of less than 50 percent. ($1=1256.8 Won) (Reporting by Kim Yeon-hee; Editing by Jan Dahinten)