LONDON, Sept 22 (Reuters) - Hedge funds bought banks,

insurance and consumer finance companies last week at the

fastest pace in three months, Goldman Sachs ( GS ) said in a research

note, amid increased dealmaking expected to boost profits and an

expected further loosening of regulations.

An index of European banks has risen over 40% so far

this year, while U.S. banks have advanced just over

20%.

The funds picked no regional favourite, but North America

and Europe took the bulk of long positions, betting that shares

in these markets would rise, according to the Goldman Sachs ( GS ) note

to clients on Friday that was seen by Reuters on Monday.

Hedge funds, which had throughout August decreased trading

levels, raised gross leverage levels last week by the largest

amount in eight months, the Goldman Sachs ( GS ) note said.

Gross leverage is a gauge of how much hedge funds are

trading.

Financial companies were the second most bought sector

monitored by Goldman Sachs' ( GS ) prime brokerage unit, followed by

tech stocks.

"We were hopeful at the start of the year that pragmatism on

the part of regulators and government would underpin a better

year for the specialist lenders, both operationally and in terms

of share prices. So far, so good," said a September 17 report by

analysts at the UK bank, Panmure Liberum.

Banks generally tend to make money in times of higher

interest rates, but the prospect of lower interest rates was

already baked into stock prices, its note said.

The Fed last week cut rates for the first time since

December and signalled further reductions at its October and

December meetings given signs of a weakening U.S. labour market.

Goldman Sachs ( GS ) CEO, David Solomon, said in a CNBC

interview earlier this month that the bank expected its busiest

week for initial public offerings since July 2021.