UPDATE 1-Hedge funds rise in 2010 but lag broader market

* Average hedge fund gained 10.2 pct in 2010 - Hennessee

* Hedge Fund Research has hedge funds gaining 10.4 pct

* Returns lag mutual funds and hedge fund's 2009 gain (Adds details from Hedge Fund Research, adds byline)

By Svea Herbst-Bayliss

BOSTON, Jan 7 (Reuters) - Hedge funds ended the year with double-digit gains but lagged behind the average stock market indexes and fell short of the average stock mutual fund's returns as well as their own more powerful rise in 2009.

In 2010, global hedge funds on average returned 10.2 percent to their wealthy investors, according to data released by the Hennessee Group on Friday.

Hedge Fund Research, another group that tracks performance and asset flows, reported hedge funds gained 10.42 percent last year after having climbed 3.15 percent in December. The firm said Macro funds that make big bets on currencies, interest rates, stocks and commodities led the pack with a 3.73 percent gain in December which helped the strategy climb 8.41 percent during the year.

Late-year stock market gains helped many managers stage dramatic turnarounds from the losses they notched in the first months when Europe's growing debt crisis and fears about the pace of the U.S. recovery weighed on returns.

But hedge funds, which have become more popular with pension funds as well as wealthy individuals in the last years, failed to keep pace with less costly alternatives. The S&P 500 index .SPX gained 12.8 percent and the average stock mutual fund rose 17.48 percent, according to data from Lipper Inc.

Indeed hedge funds, known for promising strong returns in all types of markets, did not even come close to their 19 percent gain posted in 2009.

Hedge funds tend to charge a 2 percent management fee plus 20 percent of their profits. Mutual funds generally do not charge performance fees.

Hedge funds are not required to report their returns publicly and most managers try to keep their performance secret, leaving investors to follow what few numbers are released very closely for signs of what is happening in the $1.7 trillion industry.

Some of the year's standouts include fund manager Dan Loeb's Third Point Offshore fund which gained 31.49 percent through Dec. 21, and Louis Bacon's Moore Emerging Equity L/S Fund which was up 31.72 percent through Dec. 16.

Activist investor William Ackman's Pershing Square International fund had surged 20.77 percent through the middle of December.

John Paulson, whose $33 billion hedge fund is closely watched for investing trends, told investors that his Advantage Plus Fund returned 17 percent in 2010 while his Gold Fund surged 35 percent. (Reporting by Svea Herbst-Bayliss; Editing by Matthew Lewis, Bernard Orr)