TORONTO (Reuters) - Canadian investors are pumping money into small cap companies that they normally shun in uncertain times, enticed into riskier assets by signs the economy is stabilising and by bargain prices.

The widely followed BMO Small Cap Index has raced ahead of other closely watched Canadian indexes as optimism over a global economic recovery has coaxed investors back into stocks hit especially hard by last fall's market meltdown.

It's a sign that market players are willing to be more adventurous again, experts say, with many investors believing the recovery is imminent.

"It's a good time to buy small caps. The market has had a shellacking. Small caps had more of a shellacking. The valuations are very reasonable," said Allan Jacobs, lead portfolio manager of the C$100 million ($93 million) Sprott Small Cap Equity Fund at Sprott Asset Management.

Small cap refers to stocks with relatively lower market capitalisation. While definitions vary, the range of market capitalisation for companies in the BMO index is between C$32 million and C$1.3 billion. The average is around C$370 million.

"They got oversold big time," Jacobs said. "So when things improved and the world wasn't ending they bounced back more than other stocks because they've collapsed more than other stocks."

Bargain prices have been a major driver behind the recent outperformance in small caps but investors are also willing to take on more risk, said Jennifer Dowty, portfolio manager at MFC Global Investment Management.