* Value of "short" bets hits lowest since at least 2006
* Long/short fund managers "extremely bullish"
* Long/short funds attract more than half hedge fund flows
By Francesco Canepa, Blaise Robinson and Tommy Wilkes
LONDON/PARIS, Sept 30 (Reuters) - Hedge funds' negative bets on European shares have tumbled to a level not seen since before the global financial crisis began in 2007, signalling their strongest conviction for years that the market will rise further.
It means long/short hedge funds, which bet on which stocks will rise or fall, have taken a strongly bullish tilt to take advantage of both a rising market and of the lower correlation among stocks brought about by continued monetary support by the U.S. Federal Reserve.
According to data from Markit, the overall value of "short positions" or shares out on loan on the benchmark STOXX Europe 600 has dropped to $144 billion, its lowest since Markit started to monitor the data in mid-2006, and down from $167 billion two years ago.
Short sellers borrow securities and sell them, betting they will be able to buy them back at a lower price before returning them to the lender and pocket the difference.
When factoring in the 35 percent rally in the STOXX 600 over the past two years, the overall value of shorted positions since September 2011 has tumbled by two-thirds.
"The muted borrowing demand today is the new reality. In this prolonged bull market, it has been hard for short sellers to bet against a rising tide," Alex Brog, director at Markit, said.
The hedge funds' bullishness means that for each shorted stock, there are 15 "long" positions, i.e. bets the market will rise. This compares with one short for 10 long positions in September 2011, at the height of the euro zone debt crisis, according to Markit data.
This represents a big change as not all funds have a mandate that allows them to take short positions.
"People have increased their long positions in sectors that were ridiculously cheap and with good fundamentals," said Roberto Botero, a London-based director at Sciens Capital, who sees hedge funds as even more positive on U.S. equities.
"Almost everyone in U.S. equity long/short is extremely bullish. They believe that the housing market has turned and once it's turned there's no stopping it."
Top performing long/short funds this year include John Armitage's Egerton European Equity Fund with gains of more than 20 percent to Sept. 20, and the flagship fund at Larry Robbins' Glenview Capital, up 30.7 percent to the end of August, performance data seen by Reuters shows.