Hedge funds end 2009 up 20 pct - HFR data

BOSTON Jan 8 (Reuters) - Hedge funds posted their best returns in a decade last year, suggesting that the $2 trillion has largely recovered from the record losses it reported during the height of the financial crisis in 2008.

The average hedge fund gained 20.04 percent last year after having lost 19.03 percent in 2008, according to data released on Friday by performance tracking firm Hedge Fund Research.

Last year, "performance narrowly eclipsed the 2003 return of 19.55 percent to make 2009 the best year for the hedge fund industry since 1999, when funds returned +31.29 percent," analysts at Chicago-based HFR wrote.

Hedge funds are not required to report their performance to regulators so data from private research companies like HFR and Hennessee Group are closely watched for clues about trends in the industry.

Hennessee Group reported on Thursday that the average fund gained 24.6 percent, largely matching the broader Standard & Poor's 500 stock market index gains.

In December hedge funds gained 1.25 percent, HFR reported.

For the year, funds who specialized in convertible arbitrage strategies, where managers exploit price discrepancies between corporate and convertible debt and equity, were the biggest winners, gaining 58.4 percent. Funds that bet exclusively that stock prices will fall fell hard, losing 23.5 percent. Also funds that make big bets on interest rates, currencies and stock movements slipped 2.45 percent. (Reporting by Svea Herbst-Bayliss; Editing Bernard Orr)