BERLIN (Reuters) — Germany appears to have failed in its attempt to get Group of Eight (G8) finance ministers to press for a voluntary code of conduct for hedge funds when they meet outside Berlin later this week.A senior German finance ministry official said yesterday that he did not expect the G8 to mention such a code in their final communiqué, to be presented in Potsdam on Saturday.

An earlier draft of that communiqué seen by Reuters mentions the code of conduct, suggesting that Germany has failed to persuade sceptical countries such as Britain and the United States to keep such wording in the statement. "Even if this term (code of conduct) will not be used in Potsdam, don't think that Germany has given up on this issue," the German official told reporters, requesting anonymity.

He left open the possibility that the code could be mentioned at a summit of G8 leaders in the Baltic resort of Heiligendamm next month.

Germany has been pushing for increased transparency on the activities of hedge funds and Finance Minister Peer Steinbrueck told Reuters last week he wanted the outlines of a code of conduct by the end of this year.

The failure to mention the code in Potsdam represents a setback for his efforts to agree stepped-up measures for self-regulation of the $1.6 trillion industry.

Germany fears hedge funds could threaten the stability of the financial system through their heavy reliance on borrowing to finance risky trading strategies.

They point to the example of the U.S. fund Long Term Capital Management (LTCM), which came close to collapse in 1998 amid a crisis in emerging markets which dried up liquidity. The U.S. Federal Reserve was forced to intervene at the time to prevent the LTCM crisis from threatening the broader financial system.

Washington and London have responded frostily in debates on the issue so far, and Japan appears to have sided with them. Germany has not found vocal support from other G8 countries such as Italy and France either.

Germany holds the rotating presidency of the G8, which also includes the United States, Canada, Japan, Britain, France, Italy and Russia.

The German finance ministry official said the meeting in Potsdam, which is designed to lay the groundwork for a June 6-8 Heiligendamm meeting, would not touch on exchange rates.