RLPC-European secondary loan prices fall to record lows

LONDON, Sept 18 (Reuters) - The average price of loans in Europe's secondary market slipped to fresh lows of 84.76 percent of face value on Thursday, breaching a mid-February low of 85.02, according to Reuters Loan Pricing Corp (RLPC) data.

Traders stressed that the average bid levels on the top 40 leveraged loans are indicative as trading had all but ceased while turmoil continues in the capital markets despite emergency central bank action to provide liquidity.

"There's a tornado of news swirling around the loan market and there's a lot of nervousness about the impact on portfolios due to banking consolidation," one senior trader said.

Traders are still trying to gauge the likely impact of Lehman's LEH.P weekend bankruptcy protection filing, and all eyes remain firmly on the financial sector as shares in Morgan Stanley (MS.N) and Goldman Sachs (GS.N) come under further pressure.

"The I-bank (investment bank) model is now broken", another senior trader said.

Any trading that is taking place is revolving around counterparty risk as investors try to cut exposure to the troubled investment banking sector, according to traders.

"With investment banks, you don't really know if your counterparty is going to be there," the first trader said.

In the synthetic market, the LevX Series2 senior index of leveraged loan default swaps remained under pressure, dipping to 96.5-97 in mid-afternoon trade, according to a trader.

The index firmed up slightly from an official midday mark of 96.06-96.21 from index operator Markit. (Reporting by Zaida Espana; editing by Elaine Hardcastle)