Investors slashed equity holdings in August and boosted cash levels to their highest since March 2009 as concerns about a global economic slowdown and the euro zone debt crisis drove an exodus from riskier assets, a survey showed on Tuesday.

The monthly global fund managers' survey from Bank of America-Merrill Lynch showed a net 2 percent of respondents were overweight equities this month compared with 35 percent in July and an all-time peak of 67 points in February.

The figure shows the difference between overweight and underweight positions.

The survey of 176 participants with assets of $551 billion also showed cash allocations doubled to a net 38 percent overweight from 15 percent, posting the biggest monthly rise after August 2007.

Bond allocations moved to a net 33 percent underweight from 45 percent, coming closer to the long-run average of net 34 percent underweight.

The survey was polled between August 5-11, around the time when world stocks <.MIWD00000PUS> posted their biggest weekly loss since November 2008. A net 29 percent of respondents now think a recession is likely, up from 13 percent in July.

It's pretty straightforward given what we've seen. We have seen recession fears jump and cash levels surged, said Patrik Schowitz, European equity strategist at BofA Merrill Lynch.

People are already negative and a lot of bad news is priced in. It's a clear buy signal but it's a bit too optimistic to say we will go back to where we were. We might see a rally but we do think it will be capped.

Cash balances spiked to 5.2 percent -- their highest since March 2009 -- from 4.1 percent, above the BofA's contrarian buy signal threshold of 4.5 percent.

Global equities have on average rallied 5.9 percent over the next four weeks after rising above this threshold. The reading hit 5.5 percent in December 2008.

A net 48 percent of respondents said equities were undervalued, the record in the survey's history.

Hedge funds reduced their gearing levels. The ratio of their gross assets relative to capital fell to 1.43 from 1.50 last month. Their net exposure to equity markets -- measured as long minus short as a percentage of capital -- rose to 33 percent from 31 percent.

Emerging markets were the only favored region, with a net 27 percent of investors overweight. U.S. equity positions saw the sharpest fall ever, with investors turning a net 1 percent underweight from a net 23 percent overweight in July.

(Editing by John Stonestreet)