UPDATE 2-U.S. Treasury CDS off highs as worries persist

(Updates market action, adds quotes, byline)

By Richard Leong

NEW YORK Feb 5 (Reuters) - The cost of insuring U.S. Treasuries against default ended little changed on Friday, down from a 10-month high, as worries over a possible U.S. government default lingered.

The price on five-year credit default swaps on Treasuries retreated from its initial highs after the cost to insure the sovereign debt of certain European countries fell back from record highs hit earlier, CMA DataVision said.

This week's rise in Treasury CDS prices implied traders have priced in about a 5 percent chance of a U.S. government default in the next five years, according to the credit data firm.

Worries over possible defaults by Greece, Portugal and Spain have ratcheted up the cost to insure the government debt worldwide, including Germany and the United States, this week.

Fiscal problems of these members of the 16-bloc euro zone have stoked fears that even the biggest economies will be vulnerable if their governments do not curb their borrowing. In the case of Germany, traders have been concerned it might have to bail out its weaker euro zone members.

While the United States is struggling to its own burgeoning budget, its debt is still considered among the safest investments in the world, analysts said. [ID:nN05244002]

"The U.S. is further along in the recovery and is in better shape than some of these other countries," said Thomas Simons, money market economist at Jefferies & Co. in New York.

DEFAULT JITTERS

In the credit default swap market, the five-year price to insure against a U.S. Treasury default was last about 57 basis points late Friday after rising to 59.3 basis points earlier, a level not seen since April 2009.

This meant traders would pay roughly $57,000 per $10 million in Treasury exposure late Friday. It was also six times less than what it would cost to insure against Greek, Portguese and Spainish government debt. For more, see [ID:nLDE614252]

The CDS price on Treasuries closed at 57.4 basis points in New York on Thursday. It was up 15 basis points from a week earlier, CMA said.

The cost to insure the government debt of other G7 nations also ended flat to higher on the day.

The cost to insure against a German government default closed at 45.3 basis points, compared with 45.8 basis points in New York late Thursday.

The cost to insure against a Japanese government default finished near 89 basis points late Friday, up from 83.6 basis points late on Thursday in New York.

These CDS prices implied traders have priced about a 4 percent chance of a German default in five years, and nearly a 8 percent chance of a Japanese default, according to CMA. (Reporting by Richard Leong; Editing by Kenneth Barry)