Investors cut extreme bets against emerging markets in April as improving Chinese growth expectations and cheap valuations attracted asset managers to the riskier asset class, a survey showed on Tuesday.

The monthly fund managers' survey by Bank of America Merrill Lynch also showed investors reduced overweight positions in Europe while optimism for U.S. growth encouraged two out of three to expect higher short-term rates, a level not seen since July 2011.

A net 2 percent of fund managers are underweight emerging markets this month, compared with a net 21 percent underweight in March. The net reading shows the difference between overweight and underweight positions.

The survey, which polled 188 participants with combined assets under management of $546 billion, showed investors thought emerging markets to be the most undervalued in 13 years.

China growth expectations improved for the first time in nine months, with a net 34 percent of the respondents expecting weaker growth, compared with a net 47 percent in March.

"Macro data is, maybe, finding a short-term bottom so people are questioning if their EM underweight view is correct," said Obe Ejikeme, European equity and quant strategist at BofA.

"There is the hunt for yield amongst investors today. The chase for yield is forcing investors to any high yield."

Indeed, U.S. high-yield and euro zone peripheral debt are among the trades which the respondents thought were most crowded, followed by short yen deals.

Within emerging markets, investors became overweight Russia from neutral in March, while India and Indonesia also saw an increase in overweight positions, thanks to their economic reforms.

India swung to a net 44 percent overweight from a net 13 percent underweight in March.

Overall, asset allocation to equities rose to a net 45 percent overweight, while bond holdings moved to a net 55 percent underweight from an eight-month high reading of a net 53 percent underweight last month.

Those saying the dollar is cheap rose to a 12-year high of nearly 60 percent.

Cash levels dropped to 4.6 percent but remained near a two-year high.