NEW YORK, April 10 (Reuters) - Global equities

long/short hedge funds missed out on most of a massive rally in

U.S. stocks on Wednesday triggered by U.S. President Donald

Trump's announcement of a pause on some tariffs for 90 days.

The funds were up 0.98% on the day, while the S&P 500

soared 9.5%, according to numbers compiled by Morgan Stanley

sent to clients. U.S. hedge funds posted higher gains, up 2.28%,

but still underperformed the index.

In a sudden U-turn, Trump paused tariffs on Wednesday

following a day when U.S. Treasuries sold off and showed signs

of dislocations as investors feared the new trade policy could

drive the world's largest economy into a recession. After his

announcement, stocks rallied and Treasury yields pared back some

of their gains.

The rally, which came as a surprise for market participants,

caught hedge funds with increased short positions, or bets that

stock prices would fall.

Last week, hedge funds underwent the largest selling on a

net basis in almost 15 years on Thursday, while also turning the

most bearish since 2011, according to Goldman Sachs.

With a reduced portfolio of long positions - betting prices

would go up -, hedge funds did not take much advantage of the

rally.

"Some of the activity (on Wednesday) was down to hedge funds

covering their shorts after Trump's 90-day pause announcement,"

said Jon Caplis, CEO of hedge fund research firm PivotalPath.

Still, long/short hedge funds are outperforming the S&P in

2025. Year-to-date through April 10, global funds were down

3.14%, while U.S. funds fell 4.07%. The S&P 500 dropped 6.9% in

the same period.

Morgan Stanley's numbers also showed that portfolio managers

continued to cut leverage in their portfolios. Amid uncertainty

around tariffs, hedge fund managers have slashed positions to

reduce risk.