HONG KONG -- Asian bond spreads widened on Tuesday after narrowing for a week on revived concerns that the impact of the credit crisis would be spreading beyond the financial sector.

Trading was largely subdued, dealers said, with the focus on a $300 million bond sale by China's Nine Dragon Paper (Holdings) Ltd. expected to price as early as later in the day.

The sale is being closely followed to gauge appetite for new issues, particularly those with lower investment-grade ratings. Bankers have forecast strong demand for the deal, citing what they say are hefty premiums being offered by China's largest paper board producer.

The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, widened to 505/515 basis points (bps) from Monday's New York close of around 490, a trader said.

"It's been a very sluggish session. We are wider than yesterday but we are not seeing a whole lot of trading," said the Hong Kong-based dealer.

A rally in global equity markets was halted on Monday after Bank of America Corp., the largest US retail lender, posted a bigger-than-expected 77-percent decline in quarterly profit.

Concerns that the credit crisis is spreading beyond the financial sector were also revived after Texas Instruments Inc. said its forecast results would be below Wall Street estimates, despite posting a gain in profit in the latest quarter.

Asian credit spreads had narrowed by around 100 basis points in the week to Monday as US investment banks such as Merrill Lynch posted earnings that were not as bad as feared, and as earnings from US blue chips such as International Business Machines Corp. also topped estimates.

The price trend appeared to pause on Tuesday.

The Philippines' five-year credit default swaps -- insurance-like contracts that protect against defaults and restructuring -- widened by around five basis points to 190/200 from Monday's level, a Manila-based trader said.

The country's cash bonds, among the most actively traded in Asia outside Japan, were flat in very quiet trade.

Bonds due in 2031 were quoted at 113.25/113.625 cents to a dollar, while 2032 bonds were at 98/98.375, a dealer said.

NINE DRAGONS

Whether more Asian issuers will sell debt in beleaguered dollar-bond markets remains a key question.

The region's iTRAXX high-yield index is still about double the levels in October 2007, a month in which concerns over the credit crisis started widening spreads to beyond the levels in August, when concerns in the US housing sector started.

But the index is well below a record high of around 650 hit in mid-March.

Nine Dragons is rated BBB-, or the lowest investment-grade level, by both Standard & Poor's Ratings Services and Fitch Ratings.

The firm is seeking to sell five-year bonds at around 500 basis points over equivalent US Treasuries, with a yield of around 8.0 percent, through underwriter Merrill Lynch for the transaction.

Nine Dragons is also committing to add 100 basis points to the coupon paid to investors should it be downgraded by either of the ratings services. It will add 200 basis points should the downgrade of either Fitch or S&P be below "BB," two notches below BBB-, a term sheet seen by Reuters showed.

"It's incredibly cheap, and with the covenants they have in place, it makes it a very attractive deal," said a rival syndicate banker at a major investment bank in Hong Kong.

"Investors know what's going in the market. New issuance is very rewarding right now," he said. "They are still cautious, but not as cautious as they were two or three weeks ago."