According to the BofA-ML Fund Manager Survey for January, asset allocators assigning more funds to equities than at any time since February 2011, while their confidence in the

world's economic outlook has reached its most positive level since April 2010.

Investors' appetite for risk in their portfolios is now at its highest in nine years, while an increasing number judge equities as undervalued - particularly in Europe, the survey

said.

Nearly half of the 254 survey participants said that they now expect to sell government bonds to fund purchases of riskier equities.

"Following the resolution of the US fiscal cliff, sentiment has surged," BofA Merrill Lynch Global Research chief investment strategist Michael Hartnett said.

Moreover fund managers are also reducing their cash positions. Investors have reduced cash holdings to 3.8 per cent from 4.2 per cent in December, indicating that fund managers are willing to hold riskier investment assets.

The optimism of fund managers is being reflected in the recent bull-run in global equity markets. In the first weeks of this year the UK blue chip stocks have reportedly closed at its highest level since Lehman Brothers, while US stocks are hovering close to five year high levels.

Meanwhile, the BSE benchmark Sensex yesterday breached the 20,000-level after two years but settled a tad lower at 19,986.82, still over 80 points higher.

According to the survey, the US fiscal crisis is not the biggest "tail risk" for asset markets, but it still remains investors' largest concern.

The Chinese economy is the other main concern as 63 per cent of respondents still anticipate a stronger economy this year, but one in seven sees a Chinese hard landing as their number one risk.

Investors' bullishness reflects a growing confidence in economic recovery. A net 59 per cent now expect the global economy to strengthen this year, compared to a net 40 per cent a month ago.

"While the survey reveals pockets of exuberance, undemanding valuations in Europe should underpin equities unless earnings growth fails to materialise," European investment strategist John Bilton added.

The survey which was conducted by BofA Merrill Lynch Research with the help of market research company TNS, covered 254 panelists with USD 754 billion of assets under management