U.S. equities are the primary beneficiary of improving global investor sentiment, according to the BofA Merrill Lynch Survey of Fund Managers for December.

About 44% of respondents expect the world’s economy to strengthen in 2011, compared to 35%. And with the continuing problems in Europe’s debt market, investors are turning to U.S. equities, according to the survey. “Despite rising confidence in global growth, the survey shows that Europe is losing investor support as political procrastination and banking concerns overshadow a strong corporate outlook,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research, in a press release. Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research, added: “The pending new tax deal in the U.S., combined with QE2, has restored confidence in the prospects of U.S. companies, at a time that Europe is out of favor and investors are questioning Chinese growth prospects.”

About 16% of portfolios are overweight U.S. stocks, up from just 1% in November, according to the survey. And the fact that investors are bullish on the U.S. dollar is evident by an increase in the number of investors forecasting dollar appreciation: 36% expect the dollar to make gains in 2011, up from 14% in November.

Moreover, investors are hoping that companies step-up their level of capital expenditure. According to the survey, 62% of respondents say that companies are broadly under-investing. This is the lowest such reading since this survey started posing the question in August 2005. This also represents a switch in investors’ preference for use of corporate cash. Now, the top priority is capital spending; just last month, returning cash to shareholders was the top choice. Investors are also increasingly convinced that companies should borrow more. Now, 44% of respondents believe corporate balance sheets are under-leveraged, compared with 41% in November.