(Adds price changes for other bonds, background on swap)
CARACAS, Oct 7 (Reuters) - Venezuelan state oil producer PDVSA's bonds dropped sharply on Friday after the company extended a deadline for its $5.3 billion debt swap offer due to low bondholder participation, signaling that investor reluctance could scuttle the operation.
PDVSA on Thursday moved the initial deadline from Oct. 6 to Oct. 12 and said that considerably less than half of outstanding bonds had been tendered. The swap requires more than 50 percent participation to go through.
The company's 2017 bond maturing in April fell 4.025 points to a bid price of 80.600, while the 2017N bond sank 2.050 points to a bid price of 84.150. The two bonds are part of the swap operation.
Venezuela's sovereign bonds were also down across the board, with the 2018 bond declining 6.769 points to a price of 78.306.
The swap allows investors to exchange bonds maturing in 2017 for a new bond maturing in 2020 that is backed by shares in U.S. subsidiary Citgo Holdings Inc. Bondholders will receive a greater proportion of new bonds for each old bond they swap if they participate by Oct. 12.
Adding to the negative headlines, U.S. oil giant ConocoPhillips in a lawsuit described the swap and a number of other operations involving Citgo as "fraudulent," accusing PDVSA of illegally transferring assets to avoid paying compensation in long-running nationalization dispute.
If low participation scuttles the swap, investors may shed their recently gained optimism that PDVSA will avoid defaulting on its heavy bond obligations. The company is struggling under low oil prices, slumping production and an extreme cash-flow deficit that has left it unable to pay contractors on time.
The swap was meant to clear out heavy payments including a $2 billion amortization in November and $5 billion in amortizations due in 2017.
President Nicolas Maduro insists Venezuela and PDVSA will make all debt payments and dismiss default discussion as part of a politically motivated campaign against his socialist government. (Reporting by Brian Ellsworth Editing by W Simon)