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Renewed Euro Zone Worries Prompt Investor Caution: BofA Poll

Investors have turned away from riskier assets, favouring U.S. stocks, as concerns about the euro zone debt crisis resurface and expectations for global growth are scaled back, a closely-watched fund managers' survey showed on Tuesday.

Investors have turned away from riskier assets, favoring U.S. stocks, as concerns about the euro zone debt crisis resurface and expectations for global growth are scaled back, a closely-watched fund managers' survey showed on Tuesday.

As a result, many funds now hold a slightly higher proportion of assets in cash, and more have shifted out of European equities and cut their bond holdings, the monthly poll from Bank of America Merrill Lynch (BofAML) showed.

Due to the weaker growth outlook, the poll found many more investors are predicting the U.S. Federal Reserve and the European Central Bank (ECB) will loosen policy further through the use of quantitative easing measures, known as QE.

"The more the growth fear factor rises, the more that people expect QE to come along to solve all ills," said Gary Baker, head of European equities strategy for BofAML.

The survey, which polled 256 participants with combined assets of $706 billion, was taken between April 5 and 12, at a time when concerns over Spain's financing problems and the health of its banking sector were rising.

Spain's 10-year bond yield broke through the key 6 percent mark on April 13 on fears the country would fail to meet its budget deficit targets, hitting growth and raising unemployment, and threatening the government's ability to service its debts.

But concerns over France, which faces a two-round presidential election that starts on April 22, are closely behind Spain in investors' minds, the survey found.

"The survey highlights that while investors' primary concern in the European Union is Spain's economy, the outcome and uncertainty around France's elections is also figuring high in their decision making," Baker told a news conference.

An Ipsos opinion poll published late on Monday put incumbent president Nicolas Sarkozy and Socialist challenger Francois Hollande neck and neck on 27 percent each in the first round, but showed Hollande sweeping to victory in the May 6 runoff.

The BofAML survey found fund managers were more evenly split on the outcome, with 40 percent expecting a Sarkozy win and 39 percent for Hollande.

The prospect of more unsettling news about the economic health of the euro zone has ended four successive months of increasing optimism on global growth among asset managers, with a big impact on equity allocations.

Many funds more are now overweight U.S. equities at the expense of both European and emerging markets.

A lot more investors in Europe have turned bearish on the prospects for the region's economy deteriorating in next 12 months than in the last survey. However, expectations among U.S.-based investors that the country's economy will get stronger were also being scaled back.

The one highlight was the outlook for China where, for the first time since November 2010, more investors were positive about the outlook than predicting a deterioration.

"(China) is a proxy for global confidence and global growth, that's its role within this survey," Baker said.

China's growth eased to 8.1 percent in the first three months of 2012 from 8.9 percent in the previous quarter, its slackest quarter-on-quarter expansion since 2008 and the slowest annual rise in three years.

(By Richard Hubbard; Editing by Catherine Evans)

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