Bill Gross, chief investment officer of Pimco, the world's largest bond fund manager, has urged US regulators to crack down on hedge funds to reinforce stability in the financial system.

Gross said: "Hedge funds are unregulated banks in disguise, borrowing risk-free and investing in riskier long-term investments, which offer much higher returns. If banks are regulated, hedge funds should be. The lack of regulation creates an unstable equilibrium in the financial market."