One of the Bush administration’s top finance officials said yesterday that subjecting hedge funds to government regulation could prove to be a “moral hazard,” as it would stamp a deceptive imprimatur onto investments that are by design inherently risky.

“It communicates a sense of confidence in the actual product, which, by definition, is more risky, illiquid, and has more flexibility than the average person should embrace,” President Bush’s treasury undersecretary for domestic finance, Robert Steel, said yesterday. “And I don’t like the moral hazard of communicating a government ‘all-clear.”‘

Advocates of regulation argue that hedge funds, left unchecked, could destabilize the world economy if they collapse.

Mr. Steel, who like Treasury Secretary Henry Paulson Jr. was a Goldman Sachs executive before he entered public service, was the keynote speaker at a seminar sponsored by the Manhattan Institute.

Panelists at the seminar pushed for looser securities oversight by the government.

They argued that the benefits of a law known as Sarbanes-Oxley, passed in 2002 in the wake of the Enron and Worldcom accounting scandals, are outweighed by its additional costs to businesses — which, they say, makes New York City vulnerable to losing its spot as the financial capital of the world.

Supporters of the regulations say they prevent large corporate scandals.

Three reports, including one from Mayor Bloomberg and Senator Schumer, have pushed for repealing some regulations in order to discourage companies from moving where they say it’s cheaper to do business.

In addition to declaring his opposition to hedge fund regulation by the government, Mr. Steel said he considers his position on Sarbanes- Oxley “in the middle,” adding that the law helped restore consumer confidence in the post-Enron era.

Earlier this week, by a vote of 62-35, the Senate rejected a Republican amendment to loosen some of the regulations.

The amendment sponsored by Senator DeMint of South Carolina would have made it voluntary for companies with a market value of less than $700 million to comply with Section 404 of the 2002 law, which requires publicly traded companies to hire an auditor to assess a company’s internal controls as well as publicize information about how they maintain their accounting books.

Opponents of Sarbanes-Oxley say the regulations are increasingly encouraging businesses to abandon New York City and other American capitals to establish headquarters in nations in Europe and Asia with considerably less regulation.