HONG KONG -- Asian bond spreads narrowed on Monday as yield-hungry investors snapped up bonds, though investors were cautious on South Korea after a report that its economy shrank more than expected in the fourth quarter.

"There are two competing drivers for credit spreads in Asia: economic data and diminished risk aversion. Right now, the reduction in risk aversion is a more powerful driver than the worsening economic data," said Tim Condon, chief economist at ING Financial Markets in Singapore.

He said expectation that US President-elect Barack Obama will move fast to spur the economy through lower taxes and higher spending was prompting investors to pick up risky assets.

The market expects more debt sales from Asia in the coming months following the Philippines' successful $1.5-billion global bond sale last week, the first issue in the region after it was shut for several months in 2008 due to the financial crisis.

"There is a pent up issuance and pent up demand for bonds that will determine spreads in coming months. But demand is going to overcome supply, and we will likely see a decent year for credit markets this year after a horrible 2008," Condon said.

The Asia iTRAXX investment-grade index excluding Japan, a key measure of risk aversion, narrowed to 282 basis points from 300 on Friday, a trader said. The index has fallen by more than half from a peak of nearly 650 in October.

The equivalent high-yield index was range bound at 1,050/1,200 basis points.

Asian stocks slipped for a fourth straight day on worries demand for the region's exports will remain sluggish after Friday's US payrolls report, which showed that the jobless rate rose to a 16-year high in December.

South Korea's five-year credit default swaps -- or insurance-like contracts that protect investors against defaults or restructuring -- widened to 290 basis points on Monday from 275 on Friday, a trader said.

The country's economy shrank by more than 4.0 percent in the fourth quarter of 2008 from the third, more than the previous forecast of a 1.6 percent contraction, the Hankyoreh newspaper reported, citing a Bank of Korea official.

The Philippines' five-year credit default swaps (CDS) narrowed to 330 basis points from 340 on Friday, a trader said.