Feb. 18 (Bloomberg) -- The risk of Asia-Pacific companies and governments defaulting on their debt rose on concern that a proposal to split U.S. bond insurers may spark further credit losses, credit-default swaps show.

The Markit iTraxx Asia Ex-Japan Series 8 Index of 20 high- risk, high-yield borrowers increased by 5 basis points to 566 basis points, according to prices provided by ICAP Plc. The Markit iTraxx Asia Ex-Japan Series 8 Index of 50 investment-grade borrowers increased by 4.5 basis points to 160 basis points, according to ICAP Plc at 11:11 a.m.

Corporate default risk rose on concern that a proposed breakup of MBIA Inc. and Ambac Financial Group Inc., the world's two biggest bond insurers, may deepen losses linked to U.S. home loans. Banks globally may write off $400 billion of losses, according to Group of Seven estimates.

``There are worries about the credit contagion from the U.S. subprime and monoliners,'' said Tim Condon, head of Asian research at ING Groep NV in Singapore. ``Any weak data contributes to the poor sentiment in the credit markets.''

FGIC Corp., the bond insurer stripped of its Aaa ranking by Moody's Investors Service last week, asked to be split in two to protect the ratings on municipal bonds it guarantees.

Japan, Australia

The Markit iTraxx Japan index rose 1.5 basis points to 87.5 basis points as of 9:27 a.m. in Tokyo, according to prices from Morgan Stanley. Australia's index of 25 companies rose 6.5 basis points to 143.5 basis points at 2:12 p.m., ABN Amro Holding NV prices show.

The credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on shifts in credit quality. A basis point, or 0.01 percentage point, is equivalent to $1,000 on a swap that protects $10 million of debt from default.

The contracts were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default.

``There is expectation of further bank losses,'' said DilipParameswaran, Hong Kong-based head of Asia credit research at Calyon. ``The split of FGIC into good and bad assets is also driving the prices up.''

The risk of Australia & New Zealand Banking Group Ltd. defaulting on its subordinated debt was 137.5 basis points, according to ABN Amro at 2:12 p.m. The bank said today in a statement that provisions, including $200 million on derivatives linked to U.S. debt insurer ACA Capital Holdings Inc., will cut forecast profit growth of 11.5 percent in 2008.

To contact the reporter on this story: Denise Kee in Singapore at Dkee2@bloomberg.net

Last Updated: February 17, 2008 22:26 EST