INTERVIEW-UPDATE 2-Galleon Asia stays liquid as eyes redemptions

* Asia fund has reduced leverage in past few days

* Asia fund not subject to SEC probe

* Asia's multi-strategy fund manages around $500 mln

* U.S. Galleon's founder charged with insider trading

* Lanka stocks drop 4 pct on redemption concerns; recover (Adds analyst quotes, Lanka shares, background)

SINGAPORE, Oct 21 - Galleon Asia is keeping its $500 million Asia hedge fund highly liquid ahead of likely calls from investors to withdraw money, after the founder of its U.S.-based parent was charged with insider trading.

The comments underscore the uphill task faced by funds under the Galleon group, as managers struggle to convince investors about keeping their money with them after Galleon's tangle with the law.

"It is reasonable to expect there will be requests for redemptions," said David Lau, CEO of Galleon Asia, adding so far there had been no such requests. "We are highly liquid. All the prime brokers are reaffirming their support for us (the Asia fund)," Lau told Reuters in an interview on Wednesday.

The U.S. Securities and Exchange Commission has charged Galleon's founder Raj Rajaratnam, the 52-year-old Sri Lanka-born billionaire, and executives from other U.S. companies with the largest hedge fund insider-trading scheme in the United States.

"There will be pressure from institutions and endowment fund investors as well as regulators for more insights into the way hedge funds are managed and operated," said Justin Ong, head of wealth management practice for PricewaterhouseCoopers in Asia, about the fallout from the Galleon case.

Galleon Asia's comments added to concerns in Sri Lanka, where investors dumped stocks on fears there could be more selling from Rajaratnam, who is one of the biggest single investors on the Colombo bourse.

The Sri Lankan stock market fell 4.2 percent as of 0518 GMT, before erasing the losses on bargain-hunting.

"Nobody knows what's happening with stakes that belong to Raj and Galleon Fund," said Harsha Fernando, CEO at SC Securities in Colombo.

LEVERAGE REDUCED

The Asia fund has reduced leverage in the past few days and is prepared for any requests from investors, said Lau, a former joint head of financial markets at DBS Group who was hired by Galleon in mid-2008 to run its Asia unit. He said most of the investors in the Asia fund are international institutions.

The Asia fund, which runs a long/short equity and macro strategy, is up over 15 percent since the start of the year, he said. Galleon Asia has a staff of 16 people including analysts and traders.

Lau said the Asia fund is not subject to any investigations by the SEC. "The centre of the tsunami is not here," he said.

"Where we have clear evidence that a financial institution has breached our laws and regulations, we will hold the financial institution to account," a spokeswoman of the Monetary Authority of Singapore, the country's financial regulator, said in response to queries.

Lau said Galleon has not put restrictions on investors in the past who want to withdraw money.

"We have never gated anyone... we do not intend to," he said.

The Galleon probe comes as the hedge fund industry is recovering from a tough period following last year's collapse of Lehman Brothers and the uncovering of the fraud by epic swindler Bernard Madoff.

Investors withdrew $250 billion from hedge funds between October and March, and many funds that had invested in hard-to-sell assets put up gates or suspended redemptions entirely.

In the United States, dozens of employees at Galleon Group are hunting for new jobs as investors debate how to react after the hedge fund's founder was charged.