US banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios.

Hedge funds say that in recent days several banks have cut off lending pipelines to funds which use credit portfolios - including mortgages, collateralised debt obligations and subprime securities - as collateral.

That leaves the highly-leveraged funds heavily reliant on their prime brokers for borrowing. Most would prefer to have diverse sources of borrowing.

The banks mentioned were Bank of America and Countrywide, although there are believed to be others. Bank of America declined to comment. Countrywide did not return calls.

Hedge fund managers nervous about the reliability of their lending sources were likely to attempt to reduce their level of borrowings further, said one hedge fund manager not directly affected by the banks' actions.

Several hedge fund managers, who spoke on condition of anonymity, said funds that were heavy investors in the credit markets and therefore often highly-leveraged were finding that they were no longer able to use their portfolios as collateral to borrow.

One manager said: "My prime broker is my first source of borrowing, but I used to get additional financing from other sources. I called my usual banks last week to ask for their terms and they told me there weren't any terms because they weren't lending against my credit portfolio any more. I'm not that happy."

There is no evidence that prime brokers have reduced such lending. Prime brokers provide a range of services to their hedge fund clients and it would be a more significant move for them to refuse to lend against the funds' collateral, especially when they have done so before. However, the prime brokers have recently lifted their requirements for margin lending, contributing to forced selling as funds have to meet margin calls.

The rapid lowering of debt has resulted in funds getting out of illiquid sectors of the market and often taking big losses.