A majority of investors expect the Federal Reserve to hold off from raising interest rates until the second half of 2010, according to this month’s BofA Merrill Lynch Survey of Fund Managers.

More than three quarters of the panel predict the Fed will first increase rates during the second half of 2010 or beyond. One in six respondents believes the Fed will not act before 2011, the survey found.

While inflation has become a nagging worry for investors, they have expressed no conviction that they expect more than a minor increase from the current low level. Forty-seven percent of respondents expect global core inflation to be higher in a year, up from 39 percent in October. Two thirds of the panel believes that existing monetary policy is "about right."

"Investors see inflation as a greater risk than deflation and are hedging that risk with overweight positions in emerging markets and commodities, and an underweight position in the U.S. dollar," said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.

The number of respondents suggesting companies use cash for capital spending has risen to 32 percent this month, up from 25 percent in September. Demands for higher dividends are muted with 22 percent asking companies to prioritize returning cash to shareholders. This was down slightly from 23 percent in October.

This shift reflects how risk appetite among investors is tip-toeing upward. The proportion of panelists taking lower than normal risk has shrunk to 1 percent, down from 16 percent in September.