LONDON (Reuters) - World stocks are their most expensive in 17 years, but bond yields will need to be much higher than they are currently to trigger an equity bear market, a monthly fund manager survey showed on Tuesday.

Bank of America Merrill Lynch's (BAML) poll of investors managing $592 billion worldwide was conducted from March 10-16, a period that saw Wall Street's recent string of record highs fizzle out and the Federal Reserve raise U.S. interest rates.

Global investors' allocation to stocks hit a two-year high, according to the poll, with a net 48 percent now overweight the market.

A net 34 percent of fund managers now think equities are overvalued, the highest proportion since 2000, BAML said.

Regionally, the U.S. stock market is the most overvalued, according to 81 percent of respondents. A net 44 percent think emerging market stocks are undervalued, while a net 23 percent say the same about euro zone equities.

The biggest risk to the equity bull market will come from higher interest rates, reckon 35 percent of respondents, rather than weak company earnings (21 percent).

A net 36 percent said the 10-year U.S. Treasury yield will have to rise above 3.5 percent <US10YT=RR> before a bear market in stocks ensues. The yield has risen sharply since mid-2016 but has struggled to rise above 2.5 percent. The last time it was higher than 3.5 percent was six years ago.

The Fed raised rates last week and is on course to tighten further this year. But investors are skeptical