European fund managers have become increasingly optimistic that euro-zone growth will strengthen over the next year, according to a Merrill Lynch survey released yesterday.

The percentage of European fund managers polled by Merrill between July 31st and August 7th who said economic growth in the euro zone would gain momentum was sharply higher than the previous month's survey.

A net 82 per cent of the poll sample said economic growth would improve, up from a net 55 per cent taking this stance in July and 64 per cent in June.

As growth prospects were seen improving, fund managers also believed inflation would be rekindled over the next 12 months.

A net 9 per cent of respondents said inflation would rise, against a net 28 per cent in July who saw weaker prices.

Within individual sectors, European fund managers were most overweight in the financial sector, covering categories such as banking and insurance, and most underweight in utilities such as water and power, the survey shows.

"The strongest sector message from the survey is that you should take profits on European financials," Mr Michael Hartnett, Merrill's director of European equity strategy, told a news conference.

Monetary policy in the world's large economies is now too stimulative, according to the survey, which found that investors believe that the Federal Reserve's next move will be to raise interest rates.

Of those surveyed, 41 per cent forecast higher short-term rates in one year's time, with a fifth expecting core inflation to be higher.