LONDON - Risk appetite among fund managers has grown this month with cash being put to work and equity portfolios being built up, Bank of America Merrill Lynch said on Tuesday.

The bank's March survey of 207 fund managers also showed declining concerns about inflation in developed markets and a general belief that major developed economies will not raise interest rates for some time.

BofA Merrill said that a net 46 percent of respondents were now overweight in equities compared with 33 percent in February. The firm subtracts underweight responses from overweight to get its net figure.

European assets were relatively unpopular, most likely in response to the Greek debt crisis.

(There is) a very clear regional rotation out of Europe into the U.S., said Gary Baker, BofA Merrill's head of European equity strategy.

A net 21 percent of respondents were underweight European equities in March, compared with a net 11 percent in February and a net 2 percent overweight at in January.

Baker also noted that investors had moved overweight on Japan on a net basis for the first time since July 2008.

I suspect it is an anti-Europe move rather that a plus U.S., plus Japan move, he said.

Despite concerns about Greece, a special question on how the crisis will be solved showed an increasing belief that it will be done without a default.

More than three-quarters of respondents said there would either be a European Union bailout (52 percent) or that Greece would be able to sort things out itself (24 percent).

NO INFLATION, NO HIKES

At the macroeconomic level, BofA Merrill noted a sharp fall in the number of fund managers expecting core inflation to rise in the coming year.

Two months ago, a net 61 percent of respondents expected a rise. That figure dropped to 46 percent in February and 34 percent in March.

Fewer and fewer people are concerned about inflation in the core markets, Baker said.

Perhaps as a result, expectations of interest rate hikes are relatively distant.

Some 70 percent of respondents said the U.S. Federal Reserve would tighten policy in the fourth quarter of this year (32 percent) or not until next year (38 percent).

And in Europe, 50 percent said that the European Central Bank would not tighten until 2011.

(editing by John Stonestreet)

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