(Adds byline, recasts with analyst comments)
By Richard Barley and Kirsten Donovan
LONDON, June 26 (Reuters) - Fiat's short-dated bonds rose in value after the group announced a rescue plan on Thursday, but insurance against default became more expensive as analysts said there were still questions over the group's future.
Traders quoted five-year credit default swaps on Fiat bid at 650 basis points, up around 100 basis points from Wednesday, meaning it now costs 650,000 euros a year to insure 10 million euros of the company's debt against default.
Fiat's short-dated bonds (0#FIA=) rose, however, climbing around two points in price to around 96 percent of face value at 0920 GMT, traders said. Its longer dated bonds, due in 2010 and 2011, were little changed at around 95 percent of face value.
Fiat announced plans on Thursday to raise 1.8 billion euros in fresh capital through a share issue and said it will cut 12,300 jobs as part of a last-ditch rescue plan.
"The news is still coming out, and the market is not really stable. But we've seen quite a bit of widening," said one credit default swap trader.
CAPITAL INJECTION POSITIVE
The 1.8 billion euro capital injection is positive news, said Suki Mann, credit strategist at Societe Generale, since it reduces the chance of a near-term default.
"But you've got to ask whether they're throwing good money after bad," he said. "Competition is fierce, and I question whether they can turn it around."
"You've got to take a view on whether the targets really stick and whether they're achievable," Mann said.
In the credit default swap market, traders noted that the prices being quoted also included a discount for new standards introduced last week that mean buyers of protection are less likely to make windfall profits if there is a restructuring of the company's debt. "On the old contract, the price would be about 700 (basis points)," one said.
Bond markets took a more positive view.
"The short-dated bonds have benefitted the most as the rights issue addresses the short term liquidity concerns," said one trader.
The trader added there had been a lot of interest in the company's dollar denominated bond due 2007 which has a put option allowing investors to sell the bond back to the company in July 2004.