Bear Stearns blocks withdrawals from third hedge fund

Bear Stearns, the manager of two hedge funds that collapsed last month, blocked investors from pulling money out of a third fund as losses in the credit markets expand beyond securities related to subprime mortgages. The Bear Stearns Asset-Backed Securities Fund had less than 0.5 percent of its $900 million of assets in securities linked to subprime loans, spokesman Russell Sherman said in an interview yesterday. Even so, investors concerned about losses sought to withdraw their money, he said.

Other hedge funds have announced losses. Macquarie Bank Ltd., Australia's largest securities firm, said today [1 Aug 2007] that investors in two hedge funds may lose 25% of their money and Boston-based hedge fund manager Sowood Capital Management LP said yesterday [31 Jul 2007] that it lost $1.5 billion in July after declines in the corporate debt markets.

The latest developments signal that the slump in the subprime mortgage market may not be "contained," as officials including Treasury Secretary Henry Paulson have said. "You don't necessarily have to be a subprime fund now to be having problems," said Bryan Whalen, a money manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.

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