DoubleLine's Gundlach says 'bad idea' for Fed hike with junk bonds at four-year low

NEW YORK (Reuters) - DoubleLine Capital's co-founder Jeffrey Gundlach warned on Tuesday that it might be premature for the U.S. Federal Reserve to raise interest rates next month, given junk-bond prices are hovering near four-year lows.

"To raise interest rates when junk bonds are nearly at a four-year low is a bad idea," Gundlach said in a telephone interview.

Gundlach, widely followed for his prescient investment calls, said if the Fed begins raising interest rates in September, "it opens the lid on Pandora's Box of a tightening cycle."

Gundlach said the selling pressure in copper and commodity prices driven by worries over China's growth outlook "should be a huge concern. It is the second-biggest economy in the world."

Last year, Gundlach correctly predicted that U.S. Treasury yields would fall, not rise as many others had forecast, because inflationary pressures were non-existent and technical factors, including aging demographics, were at play.

The Los Angeles-based DoubleLine Capital had $76 billion in assets under management as of June 30.

The DoubleLine Total Return Bond Fund , DoubleLine's largest portfolio by assets and run by Gundlach, had positive inflows in July.

The Total Return fund attracted a net inflow of $390.4 million last month, compared with $81.7 million in June. It has $47.2 billion in assets under management and invests primarily in mortgage-backed securities.

(Reporting by Jennifer Ablan; Editing by Lisa Shumaker)