DUBAI- The cost of insuring against sovereign debt defaults by Gulf Arab states has risen in recent days as markets price the risk the coronavirus outbreak represents for the crude export-dependent region.

Conventional spreads on the five-year credit default swaps (CDS) of Bahrain and Oman were up four and seven basis points respectively on Tuesday compared to their close last week, according to IHS Markit, while those for Saudi Arabia and Dubai have risen 5 and 3 points respectively.

The rise, though not huge, reflected risk-off sentiment in debt markets which could translate into further weakness in coming days, fund managers said.

"We haven't seen a sell off in regional bonds but the overall emerging markets sentiment is heavy because of the virus outbreak," said Zeina Rizk, executive fixed income director at Arqaam Capital, adding that it was normal for CDS to move before bonds.

The United Arab Emirates on Tuesday suspended all flights to and from Iran due to the spread of the coronavirus in the Islamic republic, while Kuwait, Bahrain and Oman reported their first cases this week. 

For Dubai, a trade hub with one of the world's busiest airports and one of the world's biggest long-haul airlines, the coronavirus has the potential to inflict a major economic setback.

For other Gulf countries - particularly those with high debt ratios - lower oil prices and disruptions to crude exports could impact fiscal balances, further widening deficits, analysts have said.

"There has been some pressure on high-yield names in the region over the past few days," said Doug Bitcon, head of fixed income funds and portfolios at Rasmala Investment Bank.

"This was due to a risk-off sentiment as the region's petrodollar economies get hit by lower oil prices, and when the sentiment is poor you see investors selling high beta names like Bahrain and Oman," he said.

According to the International Institute of Finance, economic growth prospects across the Middle East, particularly for oil exporters, could be curbed this year by the virus outbreak because of sluggish demand for oil and prices below $60. 

Brent crude fell towards $56 a barrel on Tuesday, declining for a third consecutive session. Most regional stock markets extended losses too, with the Dubai main exchange down 0.9% and Qatar shedding 0.7%.

The spread of the virus overshadowed a weekend meeting in Saudi Arabia of the finance chiefs of the world's top 20 economies, who vowed to monitor the virus impact on global growth.

(Editing by Kirsten Donovan) ((; +971522604297; Reuters Messaging: