UPDATE 2-Soros: Trade securitised products on exchanges

(Recasts with more comment)

By Huw Jones

BRUSSELS, April 17 (Reuters) - Financial instruments at the heart of current market turmoil should be traded on exchanges to cut risk, billionaire investor George Soros said on Thursday.

He also advised investors to find ways to preserve capital until it was clear how the authorities and markets would respond to the global credit crunch, saying this was still a time of wealth destruction.

"Either you have to be very cautious or very nimble," Soros said, adding he was looking at investments in the clean fuel sector.

He said the main lesson from the banking sector crisis was the need to control credit and not just money supply, and that markets were not yet out of trouble.

"There is a commodities bubble still in the growth phase while other bubbles are being deflated," Soros said.

Banks have been forced to write off more than $200 billion in investments in securitised products whose markets dried up on fears of exposure to high-risk debt.

These complex products, such as collateralised debt obligations and swaps, are currently traded privately, making them opaque and difficult to value.

"You need to have transparency on excessive use of leverage by participants," Soros told the Centre of European Policy Studies, a think tank. "Having all those contracts on exchange with well-established methods of settlement ... would do a lot to remove the uncertainty."

Soros also said hedge funds needed to be regulated like other market participants, with banks having better information about the amount of leverage hedge funds used. Hedge funds are indirectly supervised through the banks that act as their prime brokers in supplying capital.

"Banks need to have more reserves when lending to hedge funds," Soros said.

The euro EUR= has surged to record highs as the debt crisis hits the U.S. economy, but Soros said it cannot replace the dollar as the world's main reserve currency, and a system of two reserve currencies would be unstable.

He was in Brussels to promote his latest book, "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means". (Reporting by Huw Jones; Editing by Dale Hudson/Ruth Pitchford)