UPDATE 1-Global junk bond default rate at 1996 low -Moody's

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NEW YORK, Jan 9 (Reuters) - Moody's Investors Service said on Tuesday the global junk bond default rate in 2006 fell to the lowest level since 1996.

The global speculative-grade default rate fell to 1.7 percent in 2006, from 1.9 percent in 2005, driven by relatively low interest rates, narrow high-yield spreads, and robust debt sales, Moody's said.

The default rate for high-yield corporate bond issuers has averaged 5 percent per year since 1980, climbing as high as 12.7 percent and falling as low as 0.4 percent in that period.

"The year 2006 was an unexpectedly strong one for the riskiest bond issuers," Moody's analyst David Hamilton wrote in a report. "However, the credit quality pendulum appears set to swing the opposite direction in 2007."

Moody's forecasts that the pace of defaults will rise to 2.6 percent by the end of 2007.

"The surge in risky debt issuance, particularly single-B and below, will translate into higher default rates in 2007 and 2008," Hamilton wrote. "The consensus view is also for slower economic growth in 2007, placing additional upward pressure on corporate defaults."