NEW YORK (CNN/Money) - Global fund managers have turned more pessimistic about the outlook for the world economy and stocks, according to a Merrill Lynch survey released Tuesday.

But investors don't seem to be pessimistic enough to panic yet, meaning stocks could stay stuck in their months-long trading range for a while longer.

According to Merrill's survey of 275 fund managers, taken in early July, more managers expected the economy to weaken than to strengthen -- the first time that's happened since 2001, when a recession gripped the U.S. economy, the world's largest.

Some 44 percent of managers expect the economy to weaken in the next 12 months, compared with 34 percent who expect it to get stronger. That represents a significant deterioration in the outlook since April, when just 27 percent of managers expected the economy to weaken and 61 percent expected it to get stronger.

Profit expectations have shown a similar shift. Forty percent of managers surveyed in July expected corporate profits to weaken in the next 12 months, compared with 43 percent who expected profits to improve. In April, 20 percent of managers surveyed expected profits to fall, while 66 percent thought they would improve.

"The euphoria we saw at the beginning of the year about the world experiencing a synchronized cyclical recovery has disappeared," David Bowers, chief global investment strategist at Merrill Lynch, said in a statement. "While it doesn't feel like a recession is around the corner, fund managers are clearly less confident that the recovery can be sustained."

Optimism wanes The percentages of global fund managers expecting stronger growth in critical measures fell in July. Measure  July percentage expecting stronger growth  June percentage  Economy  34  48  Corporate profits  43  46  Inflation  78  90   Source:  Merrill Lynch

The report comes after recent signs that the U.S. economy has cooled off a bit, following several straight quarters of robust growth. U.S. corporate profit growth is also expected to cool down in the second half, while interest rates are expected to continue to rise in the United States and elsewhere.

Almost nobody expects a recession or a collapse of profits. Instead, most analysts look forward to a stability that will help keep stocks from falling off the table.

But with higher oil prices, geopolitical worries, an uncertain presidential election and stock valuations still high by many historical measures, the cooler economic and earnings growth could keep a lid on stock performance in the short run.

"Markets will be stuck in the middle," said Jeffrey Saut, chief investment strategist at Raymond James. "I think it's too late to be a bear and too early to be a bull, so I'm a bore.

"I've been investing in boring things, and boring has been pretty good."

Saut's strategy has been to buy and hold stuff that seems to be enjoying a secular bull market -- trees, energy and base metals, to name a few -- and take profits at inflection points in the broader market.

That is indeed a really boring way to look at things, and many on Wall Street reject it, calling instead for a rebound, perhaps as early as the summer.

In fact, just moments after Merrill released its gloomy fund manager's survey, its global private client research investment committee said it had increased its exposure to the same global equities the fund managers were rejecting.

"Financial markets have been locked in a listless trading range for much of 2004, but we think that investors would be wrong to assume that the summer lull signals that a new 'trend-less trend' has established itself," Merrill managing director Tom Sowanick, head of wealth management and CIO of global private client research, wrote. "In light of the challenges that investors have faced over the past several weeks, we regard the investment glass as 'half-full.'"

So much for pessimism.

The problem is that Wall Street would probably prefer to see sentiment move overwhelmingly in one direction or another. A lot of pessimism would be really nice for some traders, since it would make stocks cheaper, and some analysts think just such a correction is on the way.

Brown Brothers Harriman equity strategist Andrew Burkly said his firm believes the market is still due for a correction -- and the past few months of misery don't count -- that could take the major indices some 10-to-15 percent lower.

"We don't think financial markets have fully accepted or priced in the fact that we are looking at significantly higher money market and federal funds rates down the road," Burkly said. "Until we get an oversold correction, we would be reluctant to be in bonds or stocks at this point."

In the fund managers' survey, Japanese stocks were seen as a rare bright spot. Many managers said the outlook for Japanese corporate profits is the best in the world, and many were overweighting their portfolios with Japanese stocks and calling for a rise in the yen.

YOUR E-MAIL ALERTS Financial Markets Investing Economic Indicators Stocks or Create your own Manage alerts | What is this?

But managers were pessimistic about growth in China. A Chinese slowdown could have a negative impact on Japan, which ships many goods to China.

U.S. equity markets, meanwhile, continued to lose their appeal, as Merrill's measure of investor appetite for U.S. stocks fell to its lowest level since early 2002, when corporate scandals were hammering investor confidence.

Inflation concerns eased off a bit, but not much. Seventy-eight pecent of managers surveyed thought inflation would be higher in the next year, compared with 90 percent in June.

Most managers still believe global central bank policy to be too accommodative. The Federal Reserve, the U.S. central bank, recently raised its key overnight lending rate by a quarter percentage point to 1.25 percent, but managers said they believed the rate needed to climb to 3 percent before it could be considered neutral.