Sept. 15 (Bloomberg) -- Emerging-market bonds, stocks and currencies tumbled from Moscow to Mexico City as the bankruptcy of Lehman Brothers Holdings Inc. drove investors to sell all but the safest assets.

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries swelled 43 basis points to 3.77 percentage points, the widest spread in more than three years, according to JPMorgan Chase & Co.'s EMBI+ index. The MSCI Emerging Markets Index of stocks dropped 1.9 percent to 855.47, the lowest since November 2006. The index has lost a third of its value this year.

Investors sought the haven of gold and U.S. Treasuries after Lehman, once the fourth-biggest U.S. investment bank, filed the largest bankruptcy in history today, with $613 billion of debt.

``The world looks a little uglier,'' said Michael Atkin, head of sovereign research at Putnam Investments in Boston. ``Risky assets'' are ``much less attractive in this environment. There's more weakness to come in emerging markets.''

The yield on the Russian government's 30-year dollar bonds jumped 26 basis points to 6.24 percent. That's 2 percentage points more than similar-maturity U.S. notes, the widest spread since October 2004. Brazil's 11 percent bond due 2040 fell 2.96 cents on the dollar to 127.60 cents, the lowest in 14 months. The yield to the 2015 call date on the Brazil bond rose to 6.05 percent, according to JPMorgan. Yields on two-year U.S. Treasuries fell below 2 percent for the first time since April.

Brazil's real lost 1.9 percent to 1.8144 per dollar while the Mexican peso slumped 1.4 percent to 10.7406. The Turkish lira dropped 2.1 percent to 1.2645, and India's rupee touched 6.0550 per dollar, the lowest since September 2006.

Oil Sinks

The declines cut into gains from a five-year rally that was triggered by a surge in developing nations' commodity exports. The 3.62 percentage-point spread on emerging-market debt, while more than double the 1.49 percentage-point record low reached last year, is still a fraction of the record high of 16.97 percentage points set after Russia's debt default in 1998.

The cost of protecting developing nations' bonds against default jumped today, with credit-default swaps on Argentina's debt, among the highest-yielding in emerging markets, climbing 1.1 percentage points to 8.92 percentage points, the highest in at least three years. Venezuela's five-year credit-default swaps jumped 1.62 percentage points to 8.71 percentage points.

Oil, the biggest export from Venezuela, Mexico and Colombia, fell more than 6 percent to $94.54 a barrel on concern the global economic slowdown will deepen. Gold, meanwhile, surged $22.50 to $787 an ounce.

Credit-Default Swaps Soar

``The Lehman collapse is likely to trigger a significant spike in risk aversion, and it will likely take months for emerging markets to recover, rather than weeks,'' said Ivailo Vesselinov, senior economist at Dresdner Kleinwort in London.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Contracts on ICICI Bank Ltd., India's second-largest lender, rose 35 basis points to a record 4 percentage points, Barclays Capital prices show.

``We are going through a massive structural change in the U.S. financial sector,'' said Luis Costa, emerging-markets debt strategist at Commerzbank AG in London. ``We're now in a situation where even the pricing on CDS is being questioned given the massive rise of counterparty risk.''

`Big Unwind'

Turkey's ISE National 100 Index fell the most since March 17, losing 1,952.43, or 5.3 percent, to 35,081.44 at the close of trading in Istanbul. India's Sensitive Index of stocks slumped 3.4 percent to 13,531.27 and Indonesia's Jakarta Composite Index tumbled 4.7 percent, Asia's biggest decline. Russia's Micex Index fell 6.2 percent to 1,067.45, the lowest closing level since the start of 2006. Financial markets were closed in South Korea, China and Hong Kong for public holidays.

``We are in midst of a very, very big unwind of leveraged trades and until this has come to an end, fundamental issues, such as earnings and growth potential, will not be taken into consideration,'' said Matthias Siller, who manages about $4 billion at Baring Asset Management in London and focuses on emerging markets.

Stock prices in the MSCI gauge for developing countries average 9.8 times forecast earnings for the next 12 months, the cheapest in a decade versus reported profits. Valuations have fallen even as developing economies are projected to expand 6.7 percent next year, double the average rate during the 1990s, with one-tenth the inflation, according to the Washington-based International Monetary Fund.

PT Bank Mandiri, OAO Sberbank

PT Bank Mandiri, the biggest Indonesian bank, sank 8.2 percent, while Cathay Financial Holding Co., Taiwan's largest financial services company, fell 6.9 percent, and state-owned OAO Sberbank, Russia's biggest lender, lost 6.2 percent to 44.82 rubles.

``I would wait for any ripples from Lehman dismantling to pass before taking on any more risk, especially exposure to financials,'' said Maxim Tishin, a portfolio manager at UFG Asset Management in Moscow, which oversees over $350 million of debt. ``We are talking about a few weeks at the very least.''

To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net; or Lester Pimentel in New York at lpimentel1@bloomberg.net

Last Updated: September 15, 2008 17:34 EDT