Aug. 24 (Bloomberg) -- German Chancellor Angela Merkel said the recent turmoil in world financial markets underscores the need for greater transparency in hedge funds, a key aim of Germany's presidency of the Group of Eight leading nations.

``We will, of course, continue to pursue what the Finance Minister'' Peer Steinbrueck ``has been promoting quite strongly, which is better transparency rules for hedge funds,'' Merkel told reporters in Berlin today. ``I believe the entire discussion about the financial markets in past weeks has shown that this is right and important.''

The rout in global credit markets spread on Aug. 9 after some European banks acknowledged their vulnerability to rising defaults on U.S. subprime mortgages, aimed at borrowers with a poor credit history. Two German lenders, Landesbank Sachsen Girozentrale and IKB Deutsche Industriebank AG, are getting emergency funding because of subprime losses.

The European Central Bank added 211.3 billion euros ($288 billion) of extra cash to the money market between Aug. 9 and Aug. 14 to avert a credit crunch. The U.S. Federal Reserve, which also injected funds, cut its rate on direct loans to banks on Aug. 17.

``We are watching developments closely,'' Merkel said. ``The question is how we can use oversight to avoid some of the problems of the past.''

Finance ministers and central bank governors will ``perhaps make a good bit of progress'' on injecting further calm into the markets at the International Monetary Fund's forthcoming meeting in October, the chancellor said.

Ratings Probe

Merkel has said she backs calls by French President Nicolas Sarkozy and others for a probe into rating companies' assessment of companies. The statistical premise of valuations of ratings firms including Moody's Investors Service, Standard & Poor's and others ``cannot be a black box that produces something that no one can comprehend,'' Merkel told the Bild am Sonntag newspaper on Aug. 19. The remarks were confirmed by a government spokesman.

``We are often faced with a chain of credit risks that isn't intelligible and ultimately holds everyone responsible'' for possible losses, Merkel said. The turmoil in global stock markets ``proves how urgently necessary it is to have greater transparency.''

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net.

Last Updated: August 24, 2007 09:42 EDT