June 6 (Bloomberg) -- The risk Asia-Pacific companies will default on their bonds fell from a six-week high after a rally in equity markets supplanted investor concerns about losses linked to credit rating cuts at the world's biggest bond insurers.

Credit-default swap indexes in Japan and Australia declined and the Markit iTraxx Asia index of 20 high-risk, high-yield borrowers outside Japan fell 13 basis points to 480 in Hong Kong, ICAP Plc prices show. The region's investment-grade index, which falls as perceptions of credit quality improve, declined 4.5 basis points to 117.5.

Investors sold credit protection as Asian stocks advanced and U.S. stocks rose to a two-month high on a surge in crude oil prices and better-than-forecast sales at retailers. The stripping of MBIA Inc. and Ambac Financial Corp.'s top AAA credit rating by Standard & Poor's failed to dampen investor sentiment, said CraigSaalmann, credit sector specialist at JPMorgan Chase & Co.

``It's not like the market didn't already assume these guys were not AAA and that the monoline sector itself was on the nose,'' Sydney-based Saalmann said. ``AAA means a company is pristine and beyond reproach in terms of its security, its solvency and its capitalization and that it's highly profitable; none of those things can be said about MBIA and Ambac in the past 12 months.''

The MSCI Asia Pacific Index added 1.2 percent to 150.65 as of 9:53 a.m. in Tokyo, with more than four stocks climbing for each that declined. The Dow Jones Industrial Average and Nasdaq Composite Index gained yesterday after oil rose more than $5, or 4.5 percent, and sales at Wal-Mart Stores Inc. and Costco Wholesale Corp. increased in May.

Credit Sentiment Buoyed

``When equity markets are firmer on the close it typically helps the credit sentiment and generally speaking, risk sentiment,'' Saalmann said.

The Markit iTraxx Japan index fell 4 basis points to 85, according to Morgan Stanley prices. Australia's benchmark index declined 4.5 basis points to 104.5, Citigroup Inc. prices show. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.

The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. They rose to a six-week high yesterday, led by banks and consumer lenders, after Moody's Investors Service said they may cut the ratings of MBIA and Ambac.

To contact the reporters on this story: Oliver Biggadike in Tokyo at obiggadike@bloomberg.net; Laura Cochrane in Melbourne at lcochrane3@bloomberg.net.

Last Updated: June 5, 2008 23:34 EDT