Feb. 21 (Bloomberg) -- Hedge funds around the world had the worst month in at least eight years in January as equities worldwide tumbled amid concerns that the U.S. economy was headed for a recession, according to Eurekahedge.

The Eurekahedge Hedge Fund Index, which tracks the performance of 2,467 funds that invest globally, dropped 3.3 percent, based on preliminary figures, according to the Singapore-based hedge-fund research and publishing company. The drop is the worst since January 2000, when Eurekahedge began compiling the data. The index rose 0.7 percent in December.

The MSCI World Index slid 7.7 percent in January, prompting hedge-fund investors to cut positions and reduce borrowing on margin, or paying only part of the market price upfront, the Eurekahedge report said. The declines in global equities came even after the U.S. Federal Reserve cut the target for its benchmark federal funds rate twice in January.

``The fear heightened in January as to what sort of magnitude this whole U.S. subprime problem actually is,'' said Hiromichi Tsuyukubo, who helps manage about $500 million at Tokyo-based hedge fund Myojo Asset Management Japan Co. ``That prompted the selling in all directions.''

Managers of so-called long-short funds, who bet on rising and falling stock prices, had the poorest performances, while funds that trade futures, known as commodity trading advisers, or CTAs, performed the best, according to Eurekahedge.

Regional Indexes

Regional hedge-fund indexes also declined amid ongoing concerns about the turmoil in the U.S. subprime loan market, with those tracking Japan, Europe and Asia excluding Japan all having their worst returns in eight years.

The Eurekahedge Japan Hedge Fund Index, which tracks 122 funds investing in Japan, tumbled 3.2 percent. The index tracking European hedge funds sank 2.6 percent, and the Asia Ex- Japan index slid 6.8 percent. In the U.S., the Eurekahedge North American Hedge Fund Index lost 1.5 percent.

``As a fund of funds, we welcome market turmoil that better allows us to distinguish the good from the lucky in the Asian hedge fund space,'' said Ed Rogers, head of Tokyo-based Rogers Investment Advisors, which has invested more than $10 million in 13 Japan-only hedge funds.

``The Asia ex-Japan hedge funds have gotten a free ride over the past two years and many have taken their investors for a ride with regard to value delivered versus fees charged. January will hopefully put an end to that.''

Data compiled by Chicago-based Hedge Fund Research Inc. showed hedge-fund managers who concentrate on picking stocks lost an average of 4.1 percent in January, the biggest monthly decline in more than seven years.

Separately, a report by Greenwich Alternative Investments showed hedge funds worldwide reported the sharpest drop in five and a half years in January, losing 2.4 percent.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. Globally, managers oversee more than $1.8 trillion, according to Hedge Fund Research.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net

Last Updated: February 21, 2008 00:04 EST