NEW YORK (Reuters) - Increased market volatility brought gains and pain for many hedge funds in 2007, pummeling computer-based quant strategies but producing big wins for bets in emerging markets and on credit travails, according to industry watchers.

Overall, the average hedge fund ended 2007 in solid double-digit positive territory; but there were wide disparities of performance, with some top funds doubling or more in value and others falling by double digits.

Hedge fund performance analysis is always incomplete or misleading, since the privately held funds typically report only to their investors. But three large indices that compile figures -- Hedge Fund Research, Barclay Hedge and Hennessee Group -- all showed industry gains for 2007, up 10.36 percent, 10.4 percent and 11.64 percent respectively.

Overall, a big winning strategy was betting on emerging markets, particularly Asia-related, as hedge funds rode strong gains for equities markets overseas.

“It was a strong year for all emerging markets,” said Matthias Westman, chief executive of Prosperity Capital Management, a $5 billion fund group focused on Russia.

Two of Westman’s funds, Prosperity and Quest, were up 16 percent and 25 percent respectively in 2007, prompting the firm this month to launch a central European fund to focus on Kazakhstan, Uzbekistan and Georgia.

“We think the market has developed further along enough to focus on that,” said Westman, who said he’s optimistic for 2008 but concerned that “a real meltdown” in developed markets would hit his strategies.

China-focused strategies produced big winners, with Greenwoods Asset Management’s Golden China fund up 96.95 percent in 2007 and the Boyer Allan’s Greater China Fund up 77 percent, according to numbers they reported to investors. And Boyer Allan’s India Fund was also up 68.7 percent for the year.

“Emerging markets stole the show in 2007,” said Barclay Group President Sol Waksman, who said the emerging market index for the thousands of hedge funds in the Barclay index was up 23 percent for 2007.

The big losers were quant strategies, whose highly leveraged computer-driven trading models were caught flat-footed by a market volatility spike following the subprime lending market meltdown at the summer.

High-profile Renaissance Technologies Corp’s Institutional Equities Fund, launched in 2005 to much fanfare as one that could successfully trade $100 billion, ended the year down 0.2 percent. The lackluster performance caused investors to pull some $4 billion out of the fund, leaving about $22 billion at year-end. Renaissance declined to comment.

Goldman Sachs Group Inc's GS.N Goldman Sachs Global Alpha Fund fared much worse, falling nearly 40 percent for the year, according to an investor. Goldman declined to comment.

Other funds won big on the mortgage mess, mainly by shorting asset-backed securities indexes that fell on declining values of securities backed by subprime mortgages. Among major funds, Paulson & Co, a fund colossus with $28 billion under management, was a big winner, with its Credit Opportunities Fund up 590 percent for 2007, according to sources.

Other funds -- including Harbinger Capital, MKP Capital and the smaller Balestra Capital and Lahde Capital funds -- were also big winners in credit trades in 2007.

Paulson founder John Paulson told investors that last year’s bet against subprime mortgages was “the greatest asymmetrical trade” he had ever seen, meaning the upside was almost limitless but the downside risk was small.

Among other strategies, Paulson was also a big winner in merger arbitrage and event-driven investing, which bet on corporate events like mergers and bankruptcies, among others. Paulson Partners, the firm’s flagship fund, was up 51 percent for 2007, sources said.