US 'Fiscal Cliff' Tops Euro As Biggest Investor Fear - Wall Street Journal

By EVA SZALAY AND BEN FOX RUBIN

Concerns about the looming fight over the U.S. deficit are edging out the euro crisis in the minds of many investors, according to a pair of surveys by major banks.

The U.S. "fiscal cliff"--a mix of tax increases and budget cuts that kick into effect in January if Congress can't agree on a plan to reduce deficits--has become the top risk identified by investors, bumping Europe's sovereign debt woes from the top slot for the first time since last April, according to a poll conducted by Bank of America Merrill Lynch's fund management arm.

Now, 35% of 253 global investors surveyed see the U.S. fiscal cliff as their overriding concern in the short term. One-third of respondents identified the European debt crisis as the main concern, down from 48% in August.

U.S. budget politics also topped the euro zone's woes among investors polled by Barclays.

Both banks conducted their surveys in the days after European Central Bank President Mario Draghi announced that the central bank stood ready to buy unlimited amounts of short-term euro-zone bonds if governments requested aid. The plan sent the euro surging above $1.30 for the first time since May, suggesting that many investors believe the ECB will succeed in soothing market stresses.

Few believe the nearly three-year-old euro crisis is over. Some 80% of investors surveyed by Barclays believe Spain will ask for international assistance by the end of the year. That would enable the ECB to buy the country's bonds, but bind the government to potentially unpopular austerity conditions.

In the Barclays survey, 38% still believe Greece will leave the common currency in the next year. If that happens, 55% see the euro plunging below $1.20 within three months.

But that tally is down from over 60% who believed at least one country would exit the euro in the bank's previous survey in June. About one-third of equities investors see European stocks outperforming other regions, up from 11% in June. Bank of America found a majority of asset managers had loaded up on European equities to an extent not seen since February 2011, before the euro crisis escalated.

"There has been a significant improvement in investors' views about the euro-zone crisis," said Paul Robinson, a currency strategist at Barclays in London and one of the authors of the report.

Meanwhile, "worries about growth prospects in the U.S. have grown significantly," Mr. Robinson added.

Write to Eva Szalay at eva.szalay@dowjones.com