The vice-chairman of the US Federal Reserve, Roger Ferguson, has dampened fears that hedge funds pose a risk to the world's financial system.

Ferguson told a meeting of the Association for Finance Professionals in San Francisco that hedge funds did not, in his eyes, pose a threat to the capital markets. He said: "I think hedge funds are not, at this stage, a source of instability, nor likely to become one, " Market News International, a newswire, reported.