British investors retreated even further from risk in October after a month of worry over the future of the euro zone resulted in a rescue plan that many find unconvincing, a Reuters survey has found.

While stock markets surged in the wake of Wednesday's apparent breakthrough, investment managers upped allocations to cash in balanced portfolios to 8.8 percent compared with an average 7.8 percent a month earlier and from 5.4 percent in August, the poll of 13 fund managers shows.

Repeating a trend first seen in August, the increase in cash holdings came at the expense of equities, which dropped to 47.8 percent from 48.5 percent, the lowest allocation seen in more than a year.

Fund managers welcomed the rare accord among euro zone leaders on a 106 billion euro (93 billion pound) bank fundraising plan, tougher Greek debt writedowns and fresh firepower for the European Financial Stability Facility rescue fund, but only evidence that policymakers are bringing the crisis under control can repair their shattered faith in the stability of the region.

With so much political horse-trading going on behind the scenes, there is no guarantee that policymakers will deliver the goods in time to assuage the markets, Neil Michael, executive director in investment strategies at London & Capital said.

Consequently, volatility may stay with us for a while longer, he warned.

October's exposure to property also dipped to 2 percent from 2.6 percent in September while alternative investments - including hedge funds and commodities - regained some of last month's hefty losses, rising to 16.8 percent from 16.4 percent.

Allocations to bonds held firm at 24.6 percent from 24.7 percent previously.

Chris Paine, associate director for asset allocation at Henderson Global Investors, said plenty of money managers were eager to re-enter abandoned alternatives and stock markets but concerns the European plan promises more than it can achieve are proving hard to allay.

More important than the size of the bailout fund will be the perception of whether the measures taken are sufficient to ultimately ringfence the problem areas of Europe from Italy: bailing out Italy may prove too costly, he said.

HSBC Global Asset Management Chief Investment Officer Alec Letchfield said the long-term survival of the euro hinged on the implementation of deeper structural changes like fiscal integration, which politicians are so far reluctant to concede.

But even if Europe manages to curb unsustainable hikes in the cost of borrowing for indebted sovereigns and keep its banking sector afloat, investment managers are still haunted by worries the global economy is on the cusp of another recession.

With this uppermost in the minds of asset allocators, further selloffs seem likely in the near term.

Global derisking will continue until euro zone risks have been resolved. After that it is back to assessing global growth prospects, said David Miller, partner at Cheviot Asset Management.

(Reporting by Sinead Cruise; Editing by Ruth Pitchford)