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Global fund managers continue to favor U.S. equities, according to Bank of America Merrill Lynch's benchmark survey published Tuesday, but crowded fixed income positions have increased concerns for a "bond market bubble" as yields hover near record lows.

Fund managers'  global stock allocations improved 8 percentage points this month to a net underweight of 4%, the September BAML survey of 235 investors controlling around $683 billion in assets revealed, with cash allocations slipping 0.4 percentage points to a net overweight of 4.7%.

With U.S. equity indices testing all time highs ahead of Wednesday's Federal Reserve rate decision, however, investors are piling into American stocks, with allocations rising 15 percentage points -- the biggest monthly gain in more than a year -- to a net overweight of 17%, making the US the most preferred region among the survey's respondents.

"We remain contrarian bullish, as this month investors have shown only a modest improvement in risk appetite," said BAML's chief investment strategist Michael Hartnett. "Fiscal stimulus would boost investor optimism."

Trade remains the biggest concern for global fund managers polled in the survey, BAML said, holding its place for most of the past year. "Monetary policy impotence and a bond market bubble take the next two spots," BAML noted, as investors gauged the impact of a market in which nearly $17 trillion worth of fixed income product trades with a negative yield. A slowdown in China growth came fourth on the list.

"BAML's Bull & Bear Indicator remains extremely bearish @ 0.7," the bank said. "(Fund Managers's Survey) investors say fiscal stimulus essential to boost allocations to stocks, EPS expectations, and turbo-charge nascent rotation from growth to value."

The survey noted, however, that only 7% of global fund managers expect value stocks to outperform growth equities over the next 12 month, with investors actually adding to growth and defensive sectors "despite survey period during second largest relative 5-day return for MSCI US Enhanced Value vs. US Growth in past 18-years", BAML noted.

The September survey, which was carried out in the days prior to the September 14 attack on two key oil facilities in Saudi Arabia, triggering the biggest one-day increase in crude prices for more than three decades, suggested that 47% of respondents considered oil "fairly" valued at around $55 per barrel, given the global economy's trade-related slowdown.