Fund managers' cash balances have reached levels associated with extreme periods of uncertainty, according to a survey by Merrill Lynch that highlighted growing risk aversion in the investment community.

The net balance of managers "overweight" in cash relative to their benchmarks was 30 per cent. Average cash balances rose to 4.8 per cent - the highest in more than a year.

Merrill said the only other times the survey had shown cash balances at such levels was after the September 11th terrorist attacks, the October 2002 credit crunch and in the lead-up to the war in Iraq last year.

The survey of 293 money managers who together look after assets worth about $940 billion showed that pessimism was deepening, especially regarding US equities, with more than half of managers rating it their least liked region.

Investors also turned negative on global corporate profit growth for the first time in more than three years.

David Bowers, chief global investment strategist at Merrill Lynch, said: "There's a veritable collapse in expectations. They are abandoning corporate earnings and focusing on cash."

The increasing pessimism comes as US markets remain near their lows for the year.

For the first time in the survey's history, more fund managers felt that returning money to shareholders was a better use of corporate cash than capital expenditure.

Mr Bowers said: "Many of them have given up believing in global economic growth, so if nothing better can be done with corporate cash, they want it back." - (Financial Times Service)