Investors are beginning to believe the global economy is starting to operate beyond its long term potential, causing worries over inflation, according to a Merrill Lynch poll published yesterday.

However, in general the monthly poll of fund managers showed very little change to investor perceptions of a stable macro economic picture, unmoved by a strong rise in equity markets since last month.

"Macro is on autopilot and markets are being driven by micro rather than macro. The story is that there is no

story, with one exception - fund managers believe the global economy is above the long-term potential trend," David Bowers, Merrill Lynch's chief global investment strategist told a briefing.

The April poll, completed before US March non-farm payrolls on Friday revealed an unexpectedly large rise of 211,00 jobs in March, showed 35 per cent of fund managers think the global economy is operating with output above its long-term sustainable growth path, up from 30 per cent in March.

Monetary policy is therefore still regarded as too stimulative. Some 66 per cent of investors questioned thought the global economy would stay the same or get weaker in the next 12 months, slightly more than the 64 per cent in March.

More investors expect global short-term interest rates to rise in the next 12 months than bond yields to rise.

The poll also showed a record number of investors see the Japanese yen as undervalued and that they are more inclined to believe

equities are under rather than overvalued despite strength in global stock markets.

In the past couple of months, the survey has especially shown a shift towards Japanese equities because of profit expectations and valuations. US and UK stocks remain generally out of favour.

The outlook for corporate profits and commodity prices in the next 12 months remained unchanged from March's poll, with investors still split over their directions.