U.S. corporate borrowers amassed the most cash relative to debt on record through the fourth quarter and will likely preserve cash levels this year, supporting corporate bonds, Morgan Stanley said on Friday.

Cash amounted to just under 30 percent of debt in the fourth quarter, versus about 25 percent in the previous quarter, according to a Morgan Stanley report.

Coming off one of the deepest and longest downturns in modern history, corporates will stay conservative until they are completely sure the recovery is real, Morgan Stanley said.

Despite investor concerns about sovereign risk and central bank tightening, fundamental corporate improvement is a tailwind that will ultimately provide a bid to U.S. credit markets, the bank said.

Morgan Stanley's report was based on fourth quarter results from over 200 nonfinancial, investment-grade U.S. companies.

To be sure, companies will have more incentive to use cash to boost shareholder value as the economic recovery becomes more sustainable, the bank said.

In recent weeks, tobacco maker Philip Morris

launched a $12 billion share buyback plan, while Lowes Cos announced a $5 billion buyback and Home Depot raised its quarterly dividend 5 percent, its first increase since 2006.

U.S. companies overall, however, are a long way from large changes in capital structure and aggressive deployment of cash stockpiles, Morgan Stanley said. At the very least, until companies start hiring, we do not see aggressive spending.

In the fourth quarter, only 39 percent of investment-grade companies increased leverage, the lowest percentage since the end of 2006 and down from over 53 percent in the previous quarter, according to Morgan Stanley data.

Leverage should continue to edge down over coming quarters, thanks to expected earnings growth and restrained debt growth, the bank said.

With the economic recovery expected to be bumpy and below par, aggressive spending will remain in check, limiting the need to raise funds and ramp up leverage.

While this corporate conservatism is not necessarily bullish for equities or the economy, it is quite an encouraging credit story, Morgan Stanley said.

(Reporting by Dena Aubin; Editing by James Dalgleish)

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