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Global investors stick to stocks for now but bubble fear mounts

Investors look at computer screens showing stock information at a brokerage house in Shenyang, Liaoning province, April 13, 2015. REUTERS/Stringer

LONDON (Reuters) - International investors are getting increasingly anxious that stock markets may be due a downward lurch with more of them rating equities as "overvalued" than at any time since 2000, a global survey said on Tuesday.

A quarter of the 145 investors managing $392 billion who participated in the April Bank of America Merrill Lynch survey said they believed equities were topping out, up from a net 23 percent in March and 8 percent in February.

This is the highest proportion since 2000 though still well short of the record high of a net 42 percent hit in 1999, just before a tech stocks bubble burst.

Major world stock markets are currently trading at or close to record highs, driven by a recovering U.S. economy and ultra-loose monetary policy around the world that is keeping the cost of financing low and buoying asset price booms.

But most investors are still taking "risk on" positions with their portfolios and a net 54 percent of respondents remain overweight equities, the survey found, even as the number expecting a correction rises.

"There is still a strong belief the asset price inflation story will continue," said Manish Kabra, European equity and quantitative strategist at BofA Merrill Lynch.

Nevertheless, a net 13 percent of respondents said they believed "equity bubbles" were the biggest risk to their investments, up from just 2 percent in February, suggesting the high allocations to stocks may soon go into reverse.

These worries are not confined to stocks.

A net 84 percent of investors said they believed bonds were overvalued, up from 75 percent a month earlier.

Overvaluation risks were centered on U.S. assets, with more than two thirds of the survey panel saying it was the world's most overvalued region.

Investors believe asset values in other regions, including Europe and Japan, still have further to run, the survey found.

BofA Merrill Lynch said the discrepancy reflected the divergent monetary policies. While 85 percent of investors expect the U.S. Federal Reserve to raise interest rates later this year, the European Central Bank and the Bank of Japan are continuing to pursue asset-buying programs.

In terms of the biggest risks worrying investors, the largest proportion, at more than a third, cite political crises as tensions simmer over Russia's role in eastern Ukraine and conflict rages across the Middle East.

(Reporting by Chris Vellacott; editing by John Stonestreet)