Global growth expectations have hit their highest level since July 2011 and investors are showing renewed risk appetite amid greatly improved market conditions, a widely followed monthly survey of fund managers showed Tuesday.

A net 11 percent of 277 fund managers surveyed by Bank of America Merrill Lynch said the world economy will strengthen in the coming 12 months, compared with 27 percent who predicted a worsening economy in December. Investors also said liquidity conditions and the ease of trading have bounced back.

Repsondents to the Feb. 3-9 survey manage a total of $783 billion of assets.

"Improved liquidity has aided this rally, but it's important to emphasize that it also reflects improving economic sentiment," Michael Hartnett, chief global equity strategist at Bank of America Merrill Lynch Global Research, said in a statement.

The renewed optimism shown in the February survey led to the largest one-month jump in equities allocations since the beginning of 2011, with a net 26 percent of fund managers saying they were overweight equities, up from 12 percent in December.

The appetite for cyclical stocks, including the industrials and materials sectors, has increased while moves toward defensive stocks such as pharmaceuticals and telecoms have fallen, the survey showed. Investors have also reduced cash levels.

"The strongest indication of risk appetite is investors' definitive move into cyclicals from defensive stocks and the closing of underweight positions in banks, especially in Europe," said Gary Baker, Bank of America Merrill Lynch head of European equities strategy.

The February survey also revealed improved sentiment toward Europe. Only a net 12 percent of European investors are now underweight banks -- a swing of 38 percentage points from a month ago when a net 50 percent were underweight the sector.

Emerging markets are also in play. A growing majority of 86 percent of fund managers believe China's economy is heading for a soft, rather than a hard, landing. A net 44 percent are overweight emerging market equities, up from a net 20 percent in the prior month.