EMERGING MARKETS WEEK-Investors to stay defensive

By Walter Brandimarte

NEW YORK, Feb 3 (Reuters) - Emerging market investors will likely avoid increasing exposure to risky assets this week as they closely monitor the implications of a worldwide credit crisis on the global economy.

Liquidity is expected to be low, however, with most of Latin America shut on Monday and Tuesday for a long Carnival holiday. The U.S. data calendar will also be light, giving investors plenty of time to digest last week's mixed bag of economic indicators.

"Last week was the major week with the Fed and the jobs data to handle. I don't think we are expecting a whole lot of catalysts for this week, so it won't be so volatile," said one trader at an European bank in New York.

"If anything, probably we'll look for the equities trade and for spreads to stay in the present range."

Some of last week's data only increased recession fears. Friday's U.S. jobs report showed the world's largest economy cut payrolls for the first time in 4-1/2 years in January. The bad news was later tempered by numbers that indicated a modest revival in manufacturing in the beginning of the year.

Investors are now pondering whether the U.S. Federal Reserve will be able to avoid a recession with an unprecedented monetary easing of 1-1/4 percent in the short time space of two weeks.

Fears that the current credit crisis might snowball, knocking down U.S. bond insurers and eventually other risky asset classes, should also leave investors with a cautious foot.

Despite lingering recession and credit concerns, emerging sovereign debt prices have been showing some resilience so far, closing January with returns of 0.68 percent on the JP Morgan EMBI+ index 11EMJ.