Emerging debt-Asian bond spreads widen on US financial worries

HONG KONG, Aug 7 (Reuters) - Asian bond spreads widened on Thursday as losses at world top insurer AIG and U.S. mortgage firm Freddie Mac reinforced concerns that a U.S. housing-related credit crisis continues to haunt the financial sector.

Though the recent slide in oil prices has cooled concerns over inflation, it has so far failed to make a significant impact on Asian credit spreads, as risk aversion continues amid worries about the global economy and the ongoing credit crisis.

The iTRAXX Asia ex-Japan investment-grade index ITAIG5Y=IE widened by 2 basis points (bps) to 139 bps while the high-yield index ITAHY5Y=IE widened by 6 bps to 548 bps.

"Trading volumes have been very quiet. People don't want to take risks at the moment, so spreads are drifting wider," said a Hong Kong-based trader.

The widening in spreads comes after American International Group Inc (AIG) (AIG.N: Quote, Profile, Research) posted its third consecutive quarterly net loss on Wednesday, hurt again by the write-down of derivatives linked to bad mortgage investments. [ID:nN06515686]

Meanwhile, Freddie Mac (FRE.N: Quote, Profile, Research), which was at the heart of a flare-up in the credit crisis last month that led to a rescue offer from the U.S. government, posted on Wednesday its fourth consecutive quarterly loss. [ID:nN06429838]

The now one-year credit crisis comes as Asian economies deal with the challenges of managing slowing economic growth at a time of rising inflationary pressures.

South Korea raised interest rates by a quarter percentage point on Thursday, in an expected move that puts the base rate KROCRT=ECI at a 7-1/2-year high of 5.25 percent and marks the first such move in a year. [ID:nSEO294060]

But faltering domestic demand and retreating oil prices has put into question whether the Bank of Korea will follow up with more rate hikes.