By Patricia Kuo Oct. 23 (Bloomberg) -- The cost of protecting Asia-Pacific bonds from default rose to a record as investors sought to minimize risk amid a worsening global economic outlook. The Markit iTraxx Australia index of credit-default swaps was quoted 60 basis points higher at 360 as of 2:45 p.m. in Sydney, Citigroup Inc. data show. The Markit iTraxx Japan index climbed 22 basis points to 250 at 12:48 p.m. in Tokyo, according to prices from Barclays Capital. Prices rise as perceptions of credit quality decline. ``People are seeing economies decelerating everywhere, including Asia, and more unwinding of hedge funds' long positions,'' said Brayan Lai, a credit analyst at Calyon in Hong Kong. ``With fear of defaults from Argentina and Pakistan, everybody is a net protection buyer in the emerging world.'' Pakistan central bank Governor Shamshad Akhtar is flying to Dubai today to hold talks with the International Monetary Fund on a bailout to prevent the Asian nation from defaulting on its debt, which is perceived by investors as the riskiest in the world after Argentina. Hungary, Iceland, the Ukraine and Belarus are also seeking assistance from the IMF to help weather the global financial crisis. Asian money market rate rose for the first time in more than a week today as stocks slumped, Japanese exports missed estimates and after commodity prices plunged to the lowest in four years, paced by declines in oil and copper. Default swaps on Melbourne-based BHP Billiton Ltd., the world's largest mining company, climbed 30 basis points to a record 530. Contracts on Rio Tinto Group also added 30 basis points to a record 630, according to Citigroup. Interbank Rates Banks are driving up the cost of debt protection as they seek to guard against losses on credit-default swap contracts bought from hedge funds, according to Munich-based UniCredit SpA analyst Agnes Kitzmueller. Short-sale bans and client redemptions triggered record monthly losses at hedge funds in September, according to Eurekahedge Pte. Hong Kong's three-month interbank lending rate rose for the first day in five today, advancing 9.6 basis points to 3.24 percent. South Korea's one-year cross-currency swap fell to 0.15 percent at 11:15 a.m. in Seoul, showing banks are willing to accept a meager 15 basis points over U.S. rates when lending won funds in return for dollars. That indicates the government's $130 billion rescue plan hasn't ended the country's dollar shortage. Investment Grade The Asia index of 50 investment-grade borrowers outside Japan was 123 basis points higher at 556, according to ICAP Plc. The region's high-yield benchmark jumped 100 basis points to 1,300 at 11:55 a.m. in Hong Kong, according to BNP Paribas SA. Contracts on South Korea were 130 basis points higher at 630, Barclays Capital prices show. The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. Credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default. The Standard & Poor's 500 Index fell 6.1 percent to the lowest since April 2003 yesterday on weak corporate earnings and after S&P said it expects the default rate for U.S. high-yield, high-risk borrowers to reach 7.6 percent in the next 12 months. Seventy-five companies worldwide missed payments as of Oct. 15, affecting $226 billion of debt, S&P said. The CDX North America Investment Grade Index linked to 125 companies in the U.S. and Canada, rose 18 basis points to 204 basis points in New York, according to broker Phoenix Partners Group. In London, the benchmark Markit iTraxx Crossover Index increased 21 basis points to 791 after trading at a record 795, according to JPMorgan Chase & Co. To contact the reporters on this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net.

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