* Main market index up 11 pct this year, 40 pct in 2013
* Index still far off pre-crisis level
* Attractive prices, investor optimism drive growth
By Tsvetelia Tsolova
SOFIA, Feb 6 Bulgaria's fledging bourse shot up 40 percent last year thanks to its undervalued stocks and a recovering economy but it is unclear whether such a strong run is sustainable in 2014, the bourse's chief executive said.
The exchange's blue chip index has grown 11 percent since the start of the year, but the stocks are still far below the level seen before the global financial crisis, which sent the index down 80 percent in 2008.
"Many markets in the region have reached and even surpassed their pre-crisis levels," Ivan Takev, the head of the state-run exchange, told Reuters in an interview in Sofia on Thursday.
"But this has not happened here, which actually left our market comparatively cheaper compared to most of the others."
Takev declined to predict how the index would perform, saying it remained vulnerable to one-off shocks, but added that signs of renewed investor confidence were encouraging.
Sofia-based market analysts say the index is likely to continue growing this year, as the stocks are still undervalued and blue-chip companies' results are set to improve.
"What actually changed last year is that more and more investors are turning to the markets that have not yet fully recovered," said Alexander Nikolov, a portfolio manager with Karoll Capital Management.
"Our expectations are that the market will keep up rising and prices will go up, even if the global markets should have a year of correction due to prior faster growth," he said.
The exchange, whose market capitalisation is just 9.9 billion levs ($6.88 billion), has largely shrugged off domestic political turmoil that toppled one government last year and saw its successor hobbled by daily street protests. It outperformed more mainstream emerging markets in the most recent storm.
Its rapid growth has made Bulgaria a top performer in the benchmark MSCI frontiers index.
The exchange saw some standout performances last year, such as from drugmaker Sopharma AD Sofia, whose market cap doubled on stronger domestic and overseas sales. But the bourse is still marred by slack trading and few quality listings, and remains about 70 percent below its peak in late 2007.
The Bulgarian economy is expected to grow by 1.8 percent this year, up from a meagre expansion of 0.6 percent in 2013, according to government forecasts. The business sentiment index was up 4.6 percent in January over the previous month.
The country's peg to the euro, which alleviates currency risks, has also played a role in lifting Bulgarian stocks. Some market analysts believe the pending sale of the exchange to a strategic investor could further strengthen its performance.
The Socialist-led government has renewed plans to sell its majority stake of 50.05 percent in the exchange this year in a bid to further develop the Balkan country's capital markets.
"It is clear that the privatisation has to happen, but it but no-one should expect that this will push prices up," Takev said. (Editing by Matthias Williams and Tom Heneghan)