Emerging Markets-Assets rise as hopes over U.S. bailout grow

By Isabel Versiani

NEW YORK, Sept 25 (Reuters) - Emerging market assets firmed on Thursday as optimism grew over the chances of approval by the U.S. Congress of a $700 billion bailout package to rescue the financial sector.

Analysts, however, cautioned the rebound could be short-lived as details of the measures are still not clear and the outlook for global growth remains dim.

Emerging sovereign debt spreads, an important gauge of investors' aversion to risk, narrowed 6 basis points to 367 basis points over U.S. Treasuries, according to the benchmark JP Morgan Emerging Markets' Bond Index Plus 11EMJ .JPMEMBIPLUS.

The spreads have tightened by over 60 basis points from levels reached before the announcement of a U.S. bailout package plan. However, the spreads remain nearly 40 basis points wider from two weeks ago.

"Expectation that the U.S. package will be announced in the following days has lifted market spirits," said Roberto Padovani, chief economist at Banco WestLB do Brasil SA, in Sao Paulo.

"But in the short term, this positive trend is limited by uncertainties regarding the outlook for growth and the bailout itself, in addition to local worries with economies such as Russia and China."

Congressional Democrats and Republicans are meeting this Thursday to draft a final bipartisan bailout plan that is expected to let the U.S. government buy toxic mortgage-related securities and other assets held by financial firms.

Presidential candidates Barack Obama and John McCain met U.S. President George W. Bush in the White House to discuss the measures being drafted late on Thursday.

Treasury spokeswoman Jennifer Zuccarelli said the U.S. Treasury Department is looking forward to reviewing the congressional agreement over the package.

Hopes that a deal in the United States could be announced soon led the MSCI.MSCIEF emerging markets index to rise 0.96 percent.

The MSCI's Latin American stock index.MILA00000PUS rallied 4.29 percent, with Brazil's benchmark Bovespa stock index.BVSP jumping 3.98 percent and Mexico's IPC stock index MXX rising 2.81 percent.

Brazil's currency, the real BRL=(BRBY) gained 1.62 percent to 1.82 per dollar.

EMERGING MARKET PEAK

Standard & Poor's said in a report on Thursday that a "pronounced downside" to the overall credit standing of emerging market sovereigns is beginning to appear.

"We've cautioned that global conditions may become less benign, putting emerging market policy-makers to the test", said S&P credit analyst John Chambers, chairman of the rating agency's Sovereign Ratings Committee, in a report.