Global investors also increased their holdings of real estate to their highest in five and a half years as appetite for risk somewhat picked up, the monthly survey by Bank of America/Merrill Lynch (BofAML) showed.

A net 15 percent of the 173 fund managers polled for the survey believe that the world economy will improve in the next 12 months, a 28 percentage point change from last month, when 13 percent of investors forecast that the economy would weaken.

Fund managers remained cautious, however, and the shift in asset allocation was more modest than the jump in growth optimism, as many wait to see if their expectations will be fulfilled, said Manish Kabra, BofAML research European equities strategist.

Although allocation to equities shifted to a 12 percent overweight in August from 3 percent underweight in July, this remained well below the 10-year average of net 25 percent overweight for this asset class.

"The promise of policy stimulus has erased fears of global recession but high cash levels, cautious equity allocations and disdain for banks suggest that investors hate being bullish and would prefer to bet on a short-term bounce in equities rather than a major inflection point in the investment cycle," BofAML said in the survey.

Seventy-nine percent of investors polled between August 3 and 9 -- just after ECB chief Mario Draghi spelled out plans to help the euro zone expect the European Central Bank to engage in more large scale quantitative easing by the end of the year, up from 65 percent last month.

"The fresh optimism on growth is mostly driven by an increase in expectations for policy response by the ECB," Kabra told reporters, while adding that this was also helped by the fact that investors are more optimistic on China's economy than they have been in nearly two years.

Expectations for similar intervention by the U.S. Federal Reserve by year-end have dropped in the meantime to 45 percent in August from 52 percent in July.

Investors have grown more worried about the United States' fiscal problems and a net 9 percent would plan to go underweight U.S. equities in the next 12 months while they would plan to trim their underweight on euro zone equities to 5 percent.

Investors trimmed their cash holdings to 4.7 percent from 4.9 percent last month, which is still a high level and stays above 4.5 percent for the fifth month in a row.

(Reporting by Ingrid Melander; editing by Ron Askew)