Hedge funds are raising their bets against the euro amid growing fears of a regulatory backlash against their trading positions on the specific sovereign debt of Greece and other weak eurozone economies.

Many of the world's biggest hedge funds have become increasingly concerned about fierce criticism by European politicians that their country bets have heightened the crisis of confidence in some markets.

Lord Turner, the chairman of the Financial Services Authority, the UK market regulator, yesterday became the latest heavyweight figure to add his support to an investigation into speculative positions in financial instruments that gain from a fall in prices of sovereign and corporate debt.

Hedge funds such as Brevan Howard and Moore Capital, have concluded that the political and regulatory risks associated with positions against individual countries in the currency bloc were now too unpalatable.

In its most recent letter to investors, Brevan Howard – Europe's largest hedge fund with around $27bn of assets under management – said that the short trade in eurozone government bonds was “extended, crowded, fully prices the fundamentals”.

The letter added that the trade was “exposed to a regulatory squeeze as occurred on short positions on financial stocks in 2008”. It said the fund has closed out all of its positions on European sovereign debt.

In a recent letter to investors, Moore Capital, which manages just under $15bn of assets, accused EU authorities of “uninformed blame casting” and said that it currently had no net short position against Greek debt.

Paulson & Co, the $32bn US fund that shot to prominence shorting the US mortgage market last year, has also closed out its positions against Greece, according to people familiar with the situation.