Emerging debt-Asian bonds steady but inflation fears lurk

HONG KONG, Aug 22 (Reuters) - Asian bonds held steady on Friday as the optimism from modestly improved U.S. regional manufacturing and unemployment claims data was doused by a rally in oil prices which re-ignited inflation fears.

But trading volumes were thin as the major financial centre of Hong Kong was shut after the city raised a severe tropical storm warning.

Investors are also bracing for a wave of debt offerings expected from regional borrowers in the coming weeks and that supply fear prevented any aggressive position-taking.

Data released on Thursday showed the number of U.S. workers filing new claims for jobless benefits fell last week for a second week in a row and the pace of contraction in U.S.Mid-Atlantic factory activity moderated in August.

But benchmark credit indices in Asia remained unmoved as the price of oil rose overnight to log its biggest percentage gain in over two months, sparking fears that inflationary pressures in the region will climb.

The iTRAXX Asia ex-Japan high-yield index ITAHY5YIA=, a key measure of risk aversion, was quoted at 557/558 basis points (bps) while the equivalent investment-grade index ITAIG5YIA= was at 156/158. Both were unchanged from their previous close but off their Thursday highs.

But Pakistan's credit spreads widened as suicide bombings added pressure on the government to tackle the nation's mounting problems after President Pervez Musharraf quit.

Pakistan's 5-year credit default swaps (CDS) PKGV5YUSAC=MP -- insurance-like contracts that protect against defaults and restructuring -- were quoted at 740/820 bps, compared with the overnight close of 762.50 bps. Investors are also watching developments in the U.S. housing market as home-funding giants Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) are grappling with rising mortgage delinquencies which are cutting into the value of their assets and capital.

There is now growing belief among investors that a federal bailout will rescue the two government-sponsored enterprises (GSEs), which own or back almost half of all outstanding U.S. mortgages.