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Hedge Fund Bears at Year High as Equities Focus on Budget

Hedge funds, whose bearish bets on stocks have held their returns to half the Standard & Poor’s 500 Index in 2013, pushed short sales close to the highest level of the year just as the U.S. budget impasse spurred a doubling in volatility.

Rising bets against equities sent a gauge of manager bullishness compiled by ISI Group LLC within 0.2 point of its lowest reading in 2013 last week. Short sales have backfired as the S&P 500, up 19 percent this year, posts one of its broadest rallies on record. The index gained 0.4 percent to 1,710.14, extending the biggest two-day rally since January as lawmakers struggled for an accord to raise the debt ceiling. It has swung an average of 0.82 percent a day in October, compared with 0.45 percent in the third quarter.