DUBAI- Net foreign assets at Bahrain's central bank, an indication of its ability to defend its currency against any market pressure, rebounded last month after dropping to a seven-month low in March, central bank data showed on Thursday.

The assets climbed to 779.4 million dinars ($2.07 billion) in April from 533.2 million dinars in March. The central bank did not give a reason for the rise, and did not immediately respond to an emailed request for comment.

Net foreign assets at retail banks in Bahrain dropped to a record low, with liabilities exceeding assets by 1.17 billion dinars. Bankers say the central bank sometimes uses swap agreements or other deals to obtain foreign currency as needed from retail banks, bolstering its reserves.

The cost of insuring Bahrain's sovereign debt against default has jumped to near multi-year highs this week, partly because of investor jitters about the government's large budget deficit and declines in the foreign reserves.

The International Monetary Fund estimates Bahrain's state budget deficit at 11.6 percent of gross domestic product this year and predicts a current account gap of $1.20 billion, though that may be narrowed by a surge in oil prices in recent months.

The central bank's net foreign assets are now equivalent to about 45 days' worth of imports; some economists believe a safe level of reserves for emerging economies is about 90 days. Bahrain also has investments abroad which it might liquidate if it needed hard currency.

Last August, the IMF urged the central bank to stop lending to the government. Such lending is considered unsound by many economists because it can fuel inflation and undermine the currency.

After a drop in September, the lending appeared to increase again in subsequent months as the central bank's claims on the government rose. In April, however, claims on the government fell sharply, to a four-month low of 1.08 billion dinars from 1.56 billion dinars in March.

(Reporting by Andrew Torchia Editing by Gareth Jones, Larry King) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))