ASIA CREDIT CLOSE: European hopes bring relief after China data hit

HONG KONG, Aug 23 (IFR) - Asian credit spreads moved back in from the morning wides amid an upbeat opening in Europe after weak Chinese data had dampened sentiment earlier in the day.

The iTraxx investment grade index series 17 is tighter by a basis point at 144.5bp/146.5bp after widening out at mid-day following the Chinese manufacturing data. The benchmark had widened out on Wednesday and the Fed's minutes brought some respite from the selling in early trade.

The recovery in US Treasuries is helping investment grade bonds perform better with some South Korean quasi-sovereigns tighter by as much as 15bp. The rebound also helped the pure sovereign space with Indonesia and Philippines trading up by half to a point.

"It's a battle between the Fed and PMI," said a Hong Kong based trader who said the opening was quite steady after text from the Federal Reserve's minutes suggested the central bank may be getting more accommodative.

But high yield sector bonds continued to trade better on tight technical conditions despite the gloomy Chinese data as demand remains elevated in a supply starved market.

Guangzhou R&F's tap of 2016 received orders of USD2.6bn which dwarfed the originally intended USD200m size. The borrower ended up taking in USD238m and the sizeable orderbook is just an indication of the appetite for higher yielding products.

The bonds, sold at 97.06, traded up as high has 98 and then settled around 97.625/97.875. Bonds from Shanshui Cement and Road King are also trading higher on expectations they will be raising funds.

West China Cement and the Indonesian coal sector also extended gains. They were beaten down in recent days after weak financial numbers.

Markets are keen to see how West China overcomes its refinancing problems after Moody's put its Ba3 rating on review for downgrade, citing its diminishing cash balances, operational issues and capex burden.

The company's bank borrowings due in less than a year of CNY1.25bn as of June 30, is mammoth compared with the cash on its books of CNY174m.

Philippine and Indonesian sovereign bonds also traded higher as markets resumed after local holidays and the US Treasury rebound also provided relief.

(umesh.desai@thomsonreuters.com)