NEW YORK (Reuters) - Representatives of two collapsed Bear Stearns Cos Inc. hedge funds linked to risky mortgage investments have lost a court appeal seeking to have the funds liquidated in the Cayman Islands instead of in the US.

The ruling by US District Judge Robert Sweet in Manhattan upholds a bankruptcy court's decision last year requiring that the funds be liquidated in US courts. Holding the proceedings in the Cayman Islands, home to many hedge funds for tax reasons, could have shielded the funds' assets from some US creditors.

The ruling could have implications for other funds that seek protection under Chapter 15 of the US Bankruptcy Code, which covers cross-border insolvencies. The judge upheld the bankruptcy court's finding that the funds' "centre of main interests," as defined by Chapter 15, was in the US.

"It is hoped that resolution of these issues may provide some aid to navigation in these uncharted waters," Judge Sweet wrote in the decision, dated May 22 and made public on Tuesday.

"The process by which the financial problems of insolvent hedge funds are resolved appears to be of transcendent importance to the investment community and perhaps even to the society at large."

New York-based Bear Stearns Asset Management operated the two investments - the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund. The funds invested heavily in collateralized debt obligations backed by risky mortgages and plunged in value last year amid turmoil in the housing market.

Judge Sweet said the liquidators did not adequately show that the funds had a sufficient connection to the Cayman Islands. At the time of the Chapter 15 petition, there were no fund assets in the Cayman Islands, the judge said.

The liquidators, Simon Whicker and Kristen Beighton, of KPMG, had appealed a ruling by US Bankruptcy Court Judge Burton Lifland in Manhattan last year.

A lawyer for the liquidators did not immediately respond to a telephone message requesting comment on Wednesday. A Bear Stearns spokesman also was not immediately available.