UPDATE 2-Egypt stocks jump on smooth vote but investors wary
* First election since overthrow of Hosni Mubarak
* Stocks had fallen to lowest since 2009 last week
* Fears of funding crunch keep foreign investors away (Adds fund manager comments)
CAIRO, Nov 29 (Reuters) - Egypt's benchmark share index jumped 5.4 percent on Tuesday, buoyed by smooth voting in a parliamentary election, but foreign investors said they were waiting on the sidelines for an end to political turmoil and a budget crisis.
Egypt is scrambling for foreign help to fill a widening budget deficit and foreign reserves are sliding as the government tries to support the country's currency.
A showdown between police and protesters demanding an end to army rule killed 42 people last week and the interim government, which had been lobbying to secure a $3 billion International Monetary Fund financing package, quit.
The violence was a setback for the army generals who have pledged to steer Egypt to democratic civilian rule after a popular uprising ousted President Hosni Mubarak.
"At the moment we are being very careful. We just want to stand back," said Raj Morjaria, a partner at London-based private equity fund Aureos Capital. He said Aureos was unlikely to invest in Egypt before 2013.
Egypt's benchmark share index has tumbled 47 percent in 2011 as the ruling generals grapple with climbing food prices, labour strikes, dwindling police morale and fears of growing disorder.
Foreign investors dumped Egyptian securities during the uprising and their stake in the country has continued to decline as they opt not to roll over maturing treasury bills.
Most of the equity buying on Tuesday was by local investors, traders said. The market was closed for the election on Monday.
The share index slid to its lowest since March 2009 last week as protesters demanding an end to army rule clashed with police, leaving 42 people dead.
Yields on Egyptian dollar-denominated bonds soared close to 7 percent, a level not seen since March.
"It's going to take a long time and the market will get cheaper than many people think as we go through this huge transition," said Ashok Shah, chief investment officer at London & Capital.
It was too early to make investment calls on Egypt, he said, but there were positive signs amid a murky outlook.
"The return of political stability will kick off the investment cycle, attracting money from the GCC (Arabian Gulf) area," said Shah.
VOTE FOR DEMOCRACY
John Bates, head of fixed income at Silk Invest London, which holds Egyptian treasury bills, said there would be bumps along the road for Egypt.
"We think if you can see through the current unrest, what's happening is the growth of democratisation in the country," he said. "We think that's positive in the long run."
Voters thronged polling stations in Cairo, Alexandria and other cities on Monday in the first election since the uprising against Mubarak.
"Investors were quite pessimistic that the election might be postponed or canceled," said Mohamed Radwan, the head of equities at Pharos Securities. "There will definitely be some violations but the overall mood is focusing on the fact that this election was secure with a strong turnout."
Among the most traded stocks on Tuesday, Commercial International Bank soared 9.5 percent and Orascom Construction gained 4.4 percent. Ezz Steel jumped 9.9 percent.
The smooth start to polling failed to stop the Egyptian pound slipping against the dollar. It was bid as weak as 6.0036 to the U.S. currency, its lowest in almost seven years.
The government has been struggling to finance a growing budget deficit as local banks exhaust their liquidity and the political chaos scares off foreign investors. Yields in treasury bill auctions touched multi-year highs in recent days.
The cost of five-year Egyptian credit default swaps rose 7 basis points to 545 on Tuesday.
"My biggest fear is the liquidity crunch for the government and the fear that devaluation is imminent unless the new cabinet to be formed does something drastic and miraculous in a very short space of time," said Radwan at Pharos in Cairo.
But some investors think Egyptian valuations will remain cheap even if the Egyptian pound slides.
"Lots of investors are waiting for a devaluation, but that type of thing happens all the time and valuations are sufficiently attractive for me here," said Emad Mostaque, Middle East strategist at Religare. (Additional reporting by Natsuko Waki; Editing by Hans-Juergen Peters, Ron Askew)