HONG KONG - Asian debt spreads narrowed on Tuesday after US home sales surprisingly jumped in October, raising the market's appetite for risky assets such as newly-issued bonds from Philippine agency PSALM.

The Power Sector Assets & Liabilities or PSALM sold $600 million of bonds due in 2024 on Monday at 100 cents on the dollar, yielding 401.4 basis points (bps) over US Treasuries.

The Asia ex-Japan iTraxx investment-grade index tightened by 6 bps to 104/109, traders said.

"The US housing data had a marked impact on the market. The fear factor went down and risk appetite went up," said Tim Condon, chief economist at ING Financial Markets in Singapore.

Sales of previously owned US homes surged a record 10.1% in October from the previous month to their highest in more than 2 years.

Condon expects the improved sentiment on the global economy to drive spreads tighter until the end of 2009.

"On balance, risk appetite will remain firm," Condon said. "Those who were in the pessimistic camp will be drawn into the optimistic camp. Their purchases will help drive market higher towards the end of the year and even to 2010."

Demand from Philippine investors lifted PSALM bonds on Tuesday, Manila-based traders said. The debt was quoted at 101.875/102.125 cents on the dollar, while the spread narrowed to around 380 bps.

"The activity is more on the PSALM bonds today than on Philippine dollar bonds," one trader said.

PSALM's bond issue attracted $3.72 billion in orders, a market source said. Of the $600 million sold, 34% went to US investors, 25% to Europe, 15% to the Philippines and the rest to other countries in Asia, the source said.

By investor type, fund managers bought 48% of the issue and banks 52%, the source said.

The Philippines' 5-year credit default swaps (CDS) narrowed by 3 bps to 177/179, traders said.

The 5-year CDS of Reliance Industries was steady at 145/160 bps, traders said. The CDS has widened by about 15 bps in the last two weeks as talks about a potential deal with Lyondell started.

India's Reliance is offering about $12 billion to buy a controlling interest in LyondellBassell Industries.

"At the current moment, given the lack of details on the final funding structure for the acquisition, actual amount paid and size of equity stake acquired, it is difficult to judge the credit implications this acquisition could have on Reliance's balance sheet," Nomura said in a note.

Meanwhile, the market is keeping an eye on Thailand's Advance Agro plan to buy back $73.5 million worth of bonds due in 2012, representing 51% of the total debt outstanding.

The company is offering a repurchase price of up to 98.5-100 cents on the dollar for tenders made before Dec.2. The bonds were quoted at 90.875/91.875 according to Thomson Reuters data.