Spotify, the digital music service widely tipped as a potential challenger to the dominance of iTunes, is close to securing new investment from high-profile investors including the charitable foundation of Hong Kong tycoon Li Ka-shing.

Spotify, pitched as a better alternative to illegal downloading, is looking to raise funds to expand in the US, building on the hype it has generated in Europe where it has attracted more than 2m users less than a year after launching in the UK and Sweden.

The free service allows users to listen to music on demand over the internet, without having to download a track. It is supported by advertising, with other revenues generated by a ￡9.99 ($16.90) ad-free subscription option, as well as commission from selling downloads.