NEW YORK (Bloomberg) — Hedge funds are shovelling money into stocks as individuals exit at the fastest rate in a year, a sign to professional investors that the Standard & Poor's 500 Index is poised to extend its gains.

About $37.3 billion has been pulled from US mutual funds since August, according to the Investment Company Institute. Hedge funds — which lost half as much on average as the S&P 500 since stocks peaked in October 2007 — boosted bets to the highest level since the end of that year in the third quarter and have kept buying, according to data compiled by Goldman Sachs Group Inc., industry consultants and Bloomberg.

"The more sophisticated investors are seeing the opportunity, but retail investors are still scarred," said James Dunigan, the Philadelphia-based chief investment officer for the wealth management division at PNC Financial Services, which oversees $104 billion. "It suggests that the rally still has room to go."

Before credit markets started to freeze in August 2007, the last time mutual funds saw outflows this big was in the nine months up to February 2003, just as the S&P 500 began a five- year rally. Now, the sales are offering opportunities to Paulson & Co., Christofferson Robb & Co. and Passport Capital Management LLC to bet the more than $11 trillion lent, spent or guaranteed by the US government to end the recession will lift stocks.

Individuals, who account for 82 percent of mutual fund owners, took $21.4 billion more out of equities than they've added and put $312.8 billion into bonds this year through the end of October, according to Washington-based ICI.

Investments designed to profit when stocks retreat increased. So-called bear-market and long-short mutual funds attracted a record $10 billion this year through October, more than double the previous high in 2006, according to Morningstar Inc. So-called retail managers have opened 19 long-short funds, the most in a year.

By contrast, hedge funds raised their stakes by 21 percent to $604 billion in the third quarter, according to Goldman Sachs. They held $363 billion in short sales, or bets that stocks will drop, the data show. The funds now own 3.8 percent of the Russell 3000 Index, which includes the largest American companies, the highest percentage this year.

Hedge funds, mostly private pools of capital whose managers participate substantially in the profits from speculating on whether the price of assets will rise or fall, got $1.1 billion of net investments in the three months through September, according to Chicago-based Hedge Fund Research Inc. The increase was the first in a year for the $1.53 trillion industry.

The S&P 500 advanced 15 percent in that period and has rallied 61 percent since reaching a low on March 9, for a 2009 return of 24 percent including reinvested dividends.

"It makes sense hedge funds are getting long given that the market's up so much in a six-month period," said Harry Rady, who oversees $250 million as chief executive officer of Rady Asset Management LLC, a La Jolla, California-based manager whose hedge fund has been adding to stocks. "The Fed has said they're not going to let the market go down and they've done it by pumping liquidity into a variety of markets and that's spilled into the equity market. People have the confidence to take equity risk."