UPDATE 1-PIMCO global CIO doesn't want big positions on UK debt

(Updates with more comment)

By Yoruk Bahceli and Dhara Ranasinghe

LONDON, Oct 13 (Reuters) - PIMCO, one of the world's largest asset managers, said on Thursday it was avoiding large positions on UK debt and hoped that the government would return to the medium-term fiscal framework that it said has worked over the last 20 years.

British government bonds, known as gilts, have been battered since a Sept. 23 mini-budget with unfunded tax cuts raising concerns about potentially unsustainable borrowing. That rout forced the Bank of England to step in and calm markets.

Speaking at a media webinar, PIMCO's Chief Investment Officer for Global Fixed Income Andrew Balls, said he was "fairly neutral" on gilts.

"In the UK, we've generally been underweight duration or interest rate risk. At current levels we're fairly neutral," Balls said, noting that for some time PIMCO had believed UK yields should not be trading so far below U.S. peers.

He added that with high levels of volatility, "we don't really want to take big positions on UK interest rate risk."

"We have the budget statement at the end of this month and hopefully we will see... a return to the kind of medium-term framework that's worked pretty well over the last 20 odd years," Balls said.

Turmoil in the gilt market has exposed vulnerabilities in the pensions sector, leading to concerns globally about the potential for financial stability risks as central banks tighten policy to contain inflation.

Balls said it was unlikely that the UK would be the only source of instability in financial markets as interest rates rise, adding that the loan and private credit markets could also face stress.

He added that PIMCO saw a difficult outlook for world equity markets where recession risks were less priced in than in credit markets.

World stocks markets, along side bonds, have taken a beating this year, from aggressive rate hikes from the U.S. Federal Reserve and other central banks.

Speaking at the same virtual roundtable, PIMCO's North American economist Tiffany Wilding said she expected the Fed to raise rates to the 4.5-5% range before pausing.

The Fed last month hiked rates by three-quarters of a percentage point for a third straight time, taking the target range for the key rate to 3.00%-3.25%.

In contrast to the Fed, Japan has kept an ultra-easy monetary policy stance to support growth -- a policy that has weighed on the yen at a time when the dollar has soared on U.S. rate hikes.

"We see Japan as a special case where the Bank of Japan is obviously not raising rates," said Balls. "It (BOJ), has persisted with yield curve control, that is something we anticipate will change," he added, referring to a policy where the BOJ buys bonds to anchor long-dated yields lower. (Reporting by Yoruk Bahceli and Dhara Ranasinghe; editing by Diane Craft)