Boosted by a strong stock market in the second half of 2006, pension funds in the Standard & Poor’s 500 reduced their underfunding from $140 billion to an estimated $36 billion, S&P says.

The rating service’s preliminary review of its 2006 Pensions and Other Post Employment Benefits Report, to be released in June, expects the funding ratio for biggest companies’ pensions to increase from 0.90 in 2005 to an estimated 0.98 in 2006.

S&P 500 defined benefit plans as a group were $36.4 billion underfunded for 2006, a significant improvement from the $140.4 billion of underfunding found in 2005, according to S&P’s preliminary findings. Still, their financial standing contrasts starkly to the $280 billion of overfunding posted in 1999, at the height of the bull market. Funding improved to 97.5% in 2006 from 90.4% in 2005, but remains well below the 128.2% level in 1999, S&P notes.

Fully funded plans increased to 82 in 2006 from 47 in 2005.