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LONDON, May 14 (Reuters) - Fears about China's economic outlook prompted global investors to become less bullish towards equities and other riskier assets in May, a survey of fund managers shows.
The closely-watched monthly survey from Bank of America Merrill Lynch, published on Tuesday, showed investors are now a net 41 percent overweight equities, compared with 47 percent last month and a cycle peak of 57 percent seen in March.
The index reading shows the difference between overweight and underweight positions.
The poll of 177 fund managers dealing with combined assets of $517 billion also showed the average cash balance remained unchanged at a relatively high level of 4.3 percent.
The respondents cut underweight positions in bonds to 38 percent from 50 percent.
"We're seeing a consolidation of global growth and inflation expectations... We've seen a fairly sharp drop in the outlook for China and we've seen a pretty big drop in holdings in commodities," said John Bilton, European investment strategist at BofA Merrill.
Chinese growth expectations declined sharply. The number of respondents seeing a stronger Chinese economy fell to -8 percent on a net basis, turning negative for the first time in 14 months. The danger of a hard landing for China is the biggest tail risk for investors after the euro zone.
China worries drove investor allocations in commodities to a net 29 percent underweight, a level not seen since December 2008.
By contrast, allocations to Japanese stocks rose for the seventh consecutive month to a net 31 percent overweight, their highest in seven years. This compares with a net 38 percent underweight in October 2012.
Hedge funds' net exposure to equities rose to 45 percent, their highest in seven years. (Additional reporting by Alistair Smout; Editing by John Stonestreet)