Feb 8 (Reuters) - Investment manager T Rowe Price reported a smaller-than-feared drop in fourth-quarter profit on Thursday, helped by a rebound in equity markets that cushioned the hit from capital outflows.

The company is one of several asset managers that have seen money flow out of their funds as high interest rates on deposits boost the appeal of cash.

But fund managers have still avoided a major blow, thanks to a market rally on increasing hopes of a soft landing for the economy.

"We are seeing a number of early indicators that support our confidence that better days are ahead," CEO Rob Sharps said.

Assets under management (AUM) depend on two factors - performance of investments and money flowing in and out of the funds. A strong enough investment performance can offset the drag from outflows.

T Rowe ended the quarter with AUM of $1.44 trillion, 13.3% higher than a year ago despite $28.3 billion of net cash outflows.

Investment advisory fees, typically a percentage of the AUM, rose nearly 7% to $1.46 billion.

The company's adjusted profit fell 1.2% to $394.7 million, or $1.72 per share compared with analysts' average estimate of $1.60, according to LSEG data.

Active managers like T Rowe buy and sell investments more frequently compared to passive fund managers.

Such companies have been ceding market share to low-cost passive funds, which can earn decent returns just by investing in the benchmark indexes or other passive vehicles, eliminating the need for active stock-picking.

(Reporting by Niket Nishant in Bengaluru; Editing by Arun Koyyur)