A monthly survey of 12 UK-based chief investment officers, wealth managers and strategists found the average cash holding in balanced portfolios dropped to 6.6 percent from 8 percent a month earlier.

The main beneficiary of this new deployment of funds was the 'alternatives' asset class, which includes hedge funds, private equity and commodities. It climbed to 11 percent in September from 8.8 percent.

Investors also eased back slightly on bonds - also commonly regarded as a safe haven when markets are volatile - reducing exposure to 22.7 percent from 23.4. Equity allocations were little changed at 55.5 percent, from 55.7 percent.

Investors said confidence was boosted by greater certainty over issues such as what direction monetary policy will take in the United States.

"The biggest risk to markets is a more hawkish tightening policy from the U.S. Federal Reserve Bank," said Rob Pemberton, Investment Director at wealth management firm HFM Columbus.

"Markets are expecting only a very gradual and limited increases in interest rates. Anything more aggressive would lead to falls in both equity and bond markets."

However, political risk surrounding mis-timed shifts in monetary policy in the developed world remains high on the list of investor concerns.

"With growth in developed economies appearing more robust and self-sustainable, central banks may look to raise rates sooner and faster than markets are currently expecting. This would have a detrimental impact on a balanced portfolios' fixed income exposure," said Bambos Hambi, a fund manager at Standard Life Investments.

Tighter monetary policy in the U.S. would also hit emerging- market assets, Hambi said, since they lose some of their appeal if dollar holdings offered better returns.

(Reporting by Chris Vellacott; Editing by Larry King)

By Chris Vellacott