ASCHAFFENBURG, Germany (Reuters) - The German hedge fund manager arrested this week in a widening fraud probe may be a big shot who met the Pope in a private audience and keeps a jet at Frankfurt airport, but he is a mystery to his neighbours.

Helmut Kiener, founder of the K1 hedge fund group, was held on Thursday in a case prosecutors said spanned the Atlantic, featured lavish personal spending on planes, a helicopter and luxury properties and may have lost banks millions of dollars.

But residents of the quiet Bavarian town 40 kilometres (24 miles) east of Frankfurt said he was little known, and the few that knew him spoke of a pleasant, low-key individual.

"He is very nice and his wife is as well," said one of his neighbours, a chic blonde who declined to identify herself before driving away in a Mercedes-Benz.

Brewery founder Ernst Schwind, 82, said the Kieners moved into the house across the street from his five or six years ago but had scant contact with the neighbours.

"I asked everywhere in the neighbourhood what this guy does and no one could tell me what he does for a living," he added.

A woman who identified herself as Kiener's secretary answered the door at his home, partially hidden by beech and cypress trees, but declined to give any more details to a reporter via an intercom at the end of a 50-metre driveway.

Kiener, 50, remained in a Wuerzburg jail after his formal arrest on Thursday on suspicion of fraud and breach of trust.

That ended - for now - his swimming in the pool he put in at his house and his noctural jogs through the neighbourhood.

Agnes Glowacki, who worked as a freelance designer for K1 investor fact sheets and its website, told Reuters by telephone from Dubai that she had met Kiener twice, including a visit to his house.

"He was very nice, a bit absentminded, in his own world. He tended to avoid eye contact," said the 31-year-old entrepreneur who now runs her own corporate gifts company.

"He was a sympathetic figure who always paid on time. I wouldn't have worked for him if I thought something was amiss."

A woman who works in the Birth of Mary Roman Catholic church's parish office said she last saw the couple at Mass on Sunday.

His lawyer said Kiener had met Pope Benedict, who is from Bavaria, this year in a private audience.

Kiener's arrest warrant said Barclays and BNP Paribas may have lost millions of dollars in the case. Barclays may have lost most of the nearly $220 million it invested with the fund, authorities have said.

The case focuses on the K1 Global Sub Trust hedge fund run by Kiener, a psychologist who once sold ads for the Yellow Pages in Germany before moving into the financial sector.

"I have read about him in the newspaper but in Aschaffenburg he is a complete unknown. I have lived here 41 years and my house is 300 metres away," said one 79-year-old man who declined to give his name.