* Hedge funds return 1.39 pct in February
* Mark second straight months of gains
* Returns still lag broader index
BOSTON, March 7 (Reuters) - Hedge fund managers delivered gains for a second straight month in February, according to data released on Monday, but the asset class still lagged the broader stock market.
The average hedge fund returned 1.39 percent last month, according to the Hennessee Group while the Standard & Poor's 500 index .SPX advanced 3.2 percent and the Dow Jones Industrial Average .DJI increased 2.81 percent.
Rival research group Hedge Fund Research (HFR) said the average hedge fund gained 1.21 percent during the month.
In the first two months of 2011, hedge funds climbed 2.08 percent, lagging the Standard & Poor's 5.53 percent rise.
In January, the average hedge fund inched up 0.65 percent.
Hedge funds often promise to make clients money in all markets by relying on methods like shorting stocks that are more restricted at mutual funds.
"Managers benefited from modest net long exposure, but overweight exposure to cyclicals, shorts and hedges detracted from performance," said Charles Gradante, a co-founder of Hennessee Group, New York-based investors with hedge funds which also tracks performance and flows.
In February, the outlook on U.S. stocks began to cloud for many hedge fund managers, according to a report from TrimTabs/BarclayHedge. It said on Monday that 40 percent of surveyed managers were bearish on the S&P 500 last week. In January only 26 percent of polled managers were bearish.
February's trading was influenced by political unrest in the Middle East and northern Africa, which helped push oil prices higher. At the same time though, the U.S. economy appeared to get a shot in the arm as more jobs were created, suggesting the recovery may accelerate.
Hedge funds focusing on Russia and Eastern Europe gained 3.26 percent, among the best returns in the industry, while so-called short-sellers, hedge funds that bet exclusively that stock prices will fall, dropped 5.19 percent, HFR reported.
Some of the industry's biggest names extended their winnings while others swung to gains.
Steven Cohen's SAC Capital Advisors, famous for years of eye-popping returns, inched up 1.15 percent last month, an investor said. In January, the $13-billion fund gained 1.75 percent.
John Paulson, who earned $5 billion last year, saw his gold fund gain 13.24 percent in February after a disappointing start to the year with a 12 percent loss in January.
Paulson's Advantage Fund gained 2.32 percent, a person familiar with the fund but not authorized to speak about it publicly said.
The month also proved strong for William Ackman's Pershing Square which came back with a 3.1 percent gain in February after nursing losses in January, according to a person familiar with the returns.
The fund, which now oversees about $8.7 billion, is up 0.5 percent for the year after having came on strong in 2010 with a roughly 30 percent gain. (Reporting by Svea Herbst-Bayliss; Additional reporting by Jennifer Ablan in New York; Editing by Tim Dobbyn)