Most US hedge fund managers and their advisors are pessimistic on the outlook for the US economy until the end of this year, forcing the US Federal Reserve to keep a tight rein on interest rates, a survey showed.

A poll of more than 70 US hedge funds by Kinetic Partners, a firm which provides professional services to the asset management industry, found that most managers believe the US stock market will continue to show patchy, uneven performance for the rest of the year.

Nearly three quarters believed the Dow Jones Industrial Average benchmark of equities will end 2008 at no higher than 12,500 points, lower than the level at which it started the year.

More than one-fifth of funds were very bearish, saying that the DJ index would end 2008 at about 10,500 points, a loss of 3,000 points for the year. A quarter, however, believed the DJ index will gain ground, ending at about 14,500 points by the end of 2008.

Respondents believed that economic conditions will force the US Federal Reserve to keep interest rates low, with 90 per cent believing that the base lending rate will end 2008 at either 2 per cent or 2.5 per cent. Nearly half opted for the latter figure of 2.5 per cent, suggesting they believe that the Federal Reserve will raise interest rates in the course of the year from their current position of 2 per cent.

The survey found that most hedge fund managers have a pessimistic view of the US economy, with more than 80 per cent saying that US economic growth by the end of the year will either be negative or stagnant.