WASHINGTON (AP) - The growth of funds designed to mimic the price of crude oil and other energy futures is reminiscent of a similar craze that precipitated the stock market crash of 1987, billionaire financier George Soros told lawmakers yesterday.

The surge in popularity of commodity index funds is "intellectually unsound...and distinctly harmful in its economic consequences," Mr. Soros told a Senate hearing. When speculators enter a market mostly on one side - in this case, betting on rising oil futures - it "distorts the otherwise prevailing balance between supply and demand".

He likened it to the rush to invest in portfolio insurance more than 20 years ago. When those investors tried to exit the market at the same time, stock markets around the world crashed.

While acknowledging he was not an expert on oil markets, Mr. Soros said he has spent years studying market "bubbles" that begin with a trend based in reality, but are then followed by some misinterpretation of that data. He sees no imminent crash in oil prices, however, and said a decline in consumption will not occur unless the US and other developed nations' economies fall into recession.

"That makes it desirable to discourage commodity index trading while it is still inflating the bubble," Mr. Soros said. He has urged regulators to improve market oversight and to place limits on speculative positions.

Crude prices have risen more than 42 percent since early December and were trading near $127 a barrel Tuesday morning. Gasoline prices are nearing a national average of $4 a gallon, up from about $3.16 a year ago.

The US Commodity Futures Trading Commission last week said it was six months into a probe of US oil markets focused on possible price manipulation. The commission said it is investigating potential abuses in the way crude oil is purchased, shipped, stored and traded nationwide.

The CFTC said it would immediately require monthly reports from large institutional investors with a dual goal of quantifying such index trading and ensure it was "not adversely impacting the price discovery process".

But Senator Maria Cantwell (Democrat, Washington) yesterday said the CFTC's latest actions do not go far enough and that the agency must fully regulate all trading of US energy products and close foreign-based trading loopholes.

"It is abundantly clear to me that the CFTC is not doing everything it can to protect American families and businesses from the possible oil price manipulation," MS. Cantwell said, adding that if the commission does not do so on its, she will introduce legislation to force them to do so.

Senator Byron Dorgan (Democrat, North Dakota) noted that the CFTC's staff is roughly 10 percent smaller than a few years ago, while commodity trading has exploded.

A CFTC spokesman was not immediately available yesterday morning.