Foreign portfolio holdings in Colombian stocks rose in May from the previous month on foreign investors' renewed risk appetite.

Offshore investors also deposited their money in the Colombian equity market taking advantage of the 13.2% rise reported by the local stock market in the fifth month of the year.

According to preliminary data released by the Colombian securities regulator Superintendencia Financiera Friday, foreign portfolio holdings in Colombian stocks rose 22% to $2.14 billion in May, up from $1.75 billion in April but much less than the $3.21 billion reported in May 2008.

"When international investors realized that the worst had happened in the financial markets, they sold their assets in U.S. treasury bonds to invest it in emerging economies because they generate them more profitability," said Julian Cardenas, head of research at local brokerage Corredores Asociados.

Cardenas noted that the stock market rose 23% in the January-May period, "few markets in the world gave such a high profitability."

Investors also poured money in Colombian companies that trade in the local stock market on expectation that profitability will rise, thanks to lower interest rates.

Lower interest rates will prompt Colombians to consume more forcing companies to increase their production, Cardenas.

The Colombian central bank has cut rates by 550 basis points since December last year. The central bank's intervention rate currently stands at 4.5%.

Meanwhile, foreign portfolio holdings in Colombian bonds fell to $733 million in May from $835 million in April but half than the $1.44 billion reported in May 2008.

Foreign investors sold peso-denominated treasury bonds, known as TES, after the central bank said during its May monetary meeting that it doesn't intend to keep cutting rates in the near future as the current 4.5% level is the right level for Colombia's economic recovery.

"Such announcement prompted foreign investors to sell a big stake of Colombian bonds, money that was reinvested in stocks," Cardenas concluded.

-By Diana Delgado, Dow Jones Newswires; 57-1 6107044- ext 1132; diana.delgado@dowjones.com