The optimal hedge ratio is calculated by multiplying the correlation coefficient between the equity portfolio and the S&P 500 Index futures by the ratio of the volatility of the equity portfolio to the volatility of the S&P 500 futures. In this case, the correlation coefficient is 0.89, the volatility of the equity portfolio is 0.51, and the volatility of the S&P 500 futures is 0.48. Thus, the optimal hedge ratio (h) is:

$h = 0.89 \times \left(\frac{0.51}{0.48}\right) = 0.9456$

The fund manager wants to hedge two-thirds of the USD 60 million portfolio, which amounts to USD 40 million. To determine the number of futures contracts (N) needed, the hedge ratio is applied to the value of the portfolio portion being hedged and then divided by the value of one futures contract:

$N = (h \times \text{portfolio value}) / \text{futures value}$ $N = (0.9456 \times 40,000,000) / (2,120 \times 250)$ $N = 71.3679$

Since the number of contracts must be a whole number, it is rounded to the nearest integer, resulting in 71 contracts. Therefore, the fund manager should sell 71 futures contracts of the S&P 500 Index to achieve the desired hedge. The correct answer is A: Sell 71 futures contracts of the S&P 500 Index.