* GPIF posts record quarterly gain
* Stock rally boosts returns
* GPIF's domestic bond underweights target for 1st time (Adds quotes, details on investments)
By Junko Fujita
TOKYO, March 3 (Reuters) - Japan's Government Pension Investment Fund, the world's largest pension fund, posted a record quarterly gain of $92 billion thanks to a rally in the country's stock market.
GPIF on Friday reported a return of 7.98 percent in its fiscal third quarter, which ended in December.
Its paper gain totalled 10.5 trillion yen. The fund managed 144.8 trillion yen worth of assets as of December.
"We had a big gain in the quarter but there are many complex issues in the world economy so we will be carefully manage the assets going forward," said GPIF spokesman Shinichiro Mori at a media briefing on Friday.
Japan's benchmark Nikkei share index rallied 16 percent in the quarter on expectations of stronger global economic growth and as the yen weakened in the face of a surging U.S. dollar following the election of President Donald Trump.
It edged up another 2 percent in January-March this year.
In 2014 GPIF made an historic policy shift, increasing its investments in riskier assets such as stocks for higher returns, while it reduced its reliance on low-yielding domestic bonds.
Of all the pension reserve, which also included 2.5 trillion yen pooled at Japan's health ministry, 23.76 percent was allocated to Japanese stocks.
GPIF's domestic bond holdings accounted for 33.26 percent of its assets, underweighting its allocation target set in 2014 for the first time as yields rose.
GPIF allocated 13.37 percent of its assets to foreign bonds and 23.16 percent to foreign stocks. The remaining 6.3 percent was mainly cash GPIF holds.
Its Japanese stock holdings returned 15.18 percent, while the domestic bond holdings had a negative return of 1.07 percent.
GPIF directly invests only in a portion of bonds, while it asks other financial institutions to manage most of the bonds and all the stocks.
GPIF also is trying to boost its investments in alternative assets, such as infrastructure and private equity. But such investments accounted for only 0.07 percent of its total assets in the quarter, versus a target of 5 percent.
At the end of 2015 financial year, GPIF had invested 81.4 billion yen in infrastructure, while it injected 1.9 billion yen in private equity assets, said Mori.
GPIF does not have any investments in U.S. infrastructure, he added.
$1 = 114.0900 yen Reporting by Junko Fujita; Editing by Kim Coghill