John Snow, the US Treasury secretary, yesterday urged European leaders to stop using anti-capitalist rhetoric or risk losing US investment.

Mr Snow, on a visit to Brussels, urged European governments to proceed with free-market reforms and not adopt words or policies that deter investors.

The comments came amid rising criticism in France of "Anglo-Saxon" capitalism and anti-business language from Germany's ruling Social Democrats.

Hedge fund managers and private equity investors were denounced recently as "locusts" by Franz Muntefering, the Social Democrat leader.

In an interview, Mr Snow said that any move away from free markets and competition would hurt European economies.

"American businesspeople are going to put capital where they feel they are welcome, where capital is honoured and where they can get good returns," he said.

"It is not so much the language that is used, it is the policies that get embraced. And if policies get embraced that make capital feel unwelcome, capital won't come.

"It seems to me shortsighted on the part of anybody to discourage investment in their own country," he said.

Mr Snow also warned against imposing tough new regulations on hedge funds.

"Be careful with the heavy-touch approach because these are awfully important financial market players," he said. Dublin is home to around one-third of the world's hedge funds.

Mr Snow said that hedge funds "make financial markets more efficient and move capital around and put it in the hands of those who can use it best".

He added that government regulation could even increase risks.

"They [ hedge funds] police themselves to a high degree because they know the government isn't there.

"And one of the worrisome things about the government inserting itself into a situation like that is the moral hazard increase, is the perception that market players don't need to do the same due diligence, the same monitoring, the same oversight.

"That's a concern with hedge funds and that's a concern with derivatives," he said.

Mr Snow also called on China to take "immediate and significant" action to revalue the renminbi to avoid the prospect of the threat of global readjustment falling primarily on Europe.