* Preliminary data shows $19.8 bln outflow for all funds

* Analyst: Market volatility making investors skittish

* Drawing down retirement funds for living expenses

BOSTON, June 15 (Reuters) - Investors pulled $7.3 billion out of U.S. equity mutual funds in May, according to a preliminary analysis by Lipper released on Tuesday, suggesting nervousness about wild market moves and recent price declines.

Major U.S. stock market indexes tumbled from late April to early June after reaching their highest levels since September 2008.

The month of May was also notable for the still unexplained "flash crash" on May 6, when the Dow Jones industrial average .DJI plunged some 700 points in just minutes before sharply rebounding.

The equity fund outflows were part of total U.S. mutual fund outflows of $19.8 billion in May, the fifth consecutive month of net withdrawals for the $12 trillion fund industry, said Lipper, a Thomson Reuters company.

The largest outflows were from institutional money-market funds, totaling $42.6 billion, reflecting corporate treasurers’ frustration over low yields, said Lipper Research Manager Jeff Tjornehoj.

Withdrawals from equity funds reversed net inflows in the first four months of 2010 as more investors started to put the 2008 bear market behind them.

Of May’s equity fund withdrawals, some $6 billion was pulled from large-cap growth funds, the Lipper figures showed.

“There’s definitely a skittishness on the part of equity fund investors,” Tjornehoj said. “It’s probably just the hot money moving back and forth, but it’s definitely been tilting toward outflows for the last several weeks.”

He said he also suspects a good portion of the outflows were from unemployed investors drawing down 401(k) retirement-savings accounts for living expenses.

Although the deep U.S. economic recession ended in late 2009, high unemployment is lingering, forcing more Americans to dip into their savings to stay afloat.

Lipper’s figures matched other studies showing a declining interest in equities. In a study issued June 7, Financial Research Corp in Boston forecast that flows to equity funds are likely to slow this year due to uncertainty and market volatility.

According to Lipper’s preliminary data, the categories with the biggest inflows in May included institutional U.S. government money market funds, used by many corporate treasurers, and retail money market funds, with about $19 billion of inflows combined.

The third-largest category was precious metals funds, which had inflows of $5.3 billion in May. Tjornehoj said gold funds and similar vehicles are seen by investors as likely to hold their value against inflation. (Reporting by Ross Kerber; editing by John Wallace)