LONDON, Jan 20 - Optimism about economic growth prospects in Europe faded a touch among euro zone fund managers in January amid concerns about the euro's strength and domestic interest rates, a Merrill Lynch survey on Tuesday showed. While managers remained mostly upbeat about growth and corporate earnings over the coming 12 months there were signs that optimism had peaked, a poll of fund managers between January 8 and 15 showed. The euro's recent rise to a lifetime high above $1.28 earlier in January has rattled fund managers concerned about the impact on Europe's exporters, Sarah Franks, Merrill Lynch strategy analyst, told a media briefing.
"There is a worrying combination of a fragile recovery and a strong euro," Franks said. During the survey period, the euro/dollar exchange rate averaged $1.27 before easing slightly thereafter. The survey showed a net 86 percent of the poll sample thought the euro zone economy would get stronger over the next 12 months, down from a net 93 percent in December, while a net 90 percent expected stronger profits, down from 93 percent. A regional breakdown of fund managers' views from around the globe showed euro zone managers were unique in believing the monetary policy of their central bank was too restrictive, Franks said. "The euro zone is the odd man out," she said. A net 33 percent of euro zone respondents said the European Central Bank's monetary policy was too tight, as against 25 percent who took this view in December. Most euro zone fund managers said they thought that the region's equities were undervalued in January, while a small majority turned overweight cash in January from being underweight of this asset class in the previous month. Elsewhere, more euro zone fund managers in January thought corporate earnings were becoming less volatile, while a higher percentage, at 82 percent, said they expected merger and acquisition activity to pick up, rising from 78 percent in December.//