Nov. 6 (Bloomberg) -- The cost of protecting Japanese and Australian corporate bonds from default rose, ending two days of declines, after Moody's Investors Service cut Ambac Financial Group Inc.'s bond insurance rating by four levels.

The Markit iTraxx Japan index of credit-default swaps increased 23.5 basis points to 233.5 as of 1:30 p.m. in Tokyo, according to prices from Credit Suisse Group AG. The benchmark of 50 investment-grade Japanese companies, including All Nippon Airways Co. and Toyota Motor Corp., climbs as perceptions of credit quality deteriorate.

``We're getting toward the end of the financial crisis and moving into the real economic impact,'' said Mark Reade, a credit sector specialist at Citigroup Inc. in Sydney.

Ambac, which has lost 92 percent of its stock market value in the past year, was cut to Baa1 because the New York-based insurer may face more losses on mortgage-related securities it guaranteed, Moody's said yesterday. ABC Learning Centres Ltd., the world's largest child-care operator, became the second listed Australian company this week to be seized by lenders.

Outside managers from Ferrier Hodgson have been appointed, ABC Learning said in a statement today. Bankers for the Brisbane- based company, including Commonwealth Bank of Australia and Westpac Banking Corp., named McGrathNicol as receiver to 38 divisions of the business.

The iTraxx Australia index of credit-default swaps climbed 15 basis points to 255, according to Citigroup data. The index is a benchmark for protecting bonds against default, and traders use it to speculate on changes in credit quality.

U.S. Services Contract

Credit-default swaps in Asia rose after the U.S. services industry contracted the most on record in October, adding to concern the economy is facing a prolonged recession.

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the U.S. economy, fell yesterday to 44.4, below economists' forecasts and the worst result since records began in 1997. A private labor market survey by Challenger, Gray & Christmas Inc. indicated companies cut 157,000 workers last month, up 79 percent from a year earlier.

Credit-default swaps in Asia outside Japan rose, with the investment-grade Markit iTraxx regional benchmark climbing 36.5 basis points to 387.5 in Hong Kong, according to ICAP Plc data.

`Dismal Data'

``Dismal macroeconomic data and poor corporate results reminded investors that we are only at the start of a deep recession,'' said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. ``Corporate spreads widened on higher risk aversion.''

The cost of protecting corporate bonds in North America and Europe yesterday fell to the lowest in three weeks as interbank rates for one-month loans in dollars dropped to the lowest since November 2004.

Swaps on the Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, dropped 15.5 basis points to 182.5 in New York, according to broker Phoenix Partners Group. In London the benchmark Markit iTraxx Europe index fell 12 basis points to 133, according to JPMorgan Chase & Co. prices.

Credit-default swaps pay the buyer face value in exchange for the underlying securities, or cash equivalent, if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.

To contact the reporters on this story: Oliver Biggadike in Tokyo at obiggadike@bloomberg.net; Aaron Pan in Hong Kong at apan8@bloomberg.net.

Last Updated: November 6, 2008 03:26 EST