LONDON - Lebanon sovereign dollar-bonds rallied as much as 1 cent on Wednesday after the country formed a government under Prime Minister Hassan Diab on Tuesday.

The bond maturing in March this year jumped 1 cent to 84.02 cents in the dollar, according to MarketAxess. Bonds maturing in 2030 and 2037 gained 0.6 cents to trade just over 42 cents in the dollar, according to Tradeweb and Refinitiv.

The heavily indebted state has been without effective government since Saad al-Hariri, Lebanon's main Sunni leader and a traditional ally of the West and Gulf Arab states, quit as premier in October following widespread protests against politicians who have led Lebanon into its worst crisis since the 1975-90 war.

"Our base case is that the new cabinet’s funding plan will likely entail external funding and attempt to restore confidence – as pointed out by Finance Minister Ghazi Wazni," said Standard Chartered Bank economist Carla Slim, pointing to Prime Minister Diab's first official visit being set for the GCC countries.

"Still, chances of debt restructuring could rise materially if Lebanon fails to secure sufficient external funding in the next six months."

(Reporting by Karin Strohecker; Editing by Tom Arnold) ((karin.strohecker@thomsonreuters.com; +442075427262; Reuters Messaging: karin.strohecker.reuters.com@reuters.net))