12:06 17/06/2004

The chief investment officer at Pimco, the world's largest bond fund manager, today said that hedge funds could tip the world's economy into imbalance.

Bill Gross called for the regulation of hedge funds because of the risk they pose to the world's financial system. Gross told the Financial Times that hedge funds, global warning and excessive borrowing - both by government and individuals- were creating an "unstable environment which can turn any minute."

He added that the leveraged economy, particularly in Japan and the US, meant, "smaller movements in interest rates have a magnified effect... a small movement can tip the boat."

Gross warned of bubbles in commodities, the UK housing market and the US currency, adding that the latter was overvalued against Asian currencies.