Troubles mounted for some of the world's biggest hedge funds yesterday as Highland Capital Management told investors it was shutting down two of its funds and details emerged of big losses at TPG-Axon.

The problems in the sector have set in motion a vicious cycle in the markets as hedge funds sell holdings to return money to worried investors, triggering further price declines and prompting more withdrawals. Investors pulled at least $43bn from hedge funds in September, according to TrimTabs Investment Research.