New Islamic bond sales fell 66 pct in '08-IFIS

KUALA LUMPUR, Jan 9 (Reuters) - New Islamic bond issuance fell two-thirds to a three-year low in 2008, with key market Malaysia dropping 78 percent, an industry body said, casting doubts about the sector's resilience against the global downturn.

Islamic bond sales have almost dried up in recent months as a worsening global economic outlook prompts banks to turn off the tap and consumers to tighten their belts.

Sales of new Islamic bonds, or sukuk, totalled $15.77 billion last year versus $46.65 billion in 2007, according to Islamic Finance Information Service (IFIS) which tracks data in the Islamic finance industry.

Total sukuk issuance last year was the lowest since the $10.76 billion recorded in 2005, it said in a statement.

Corporate sukuk sales totalled $9.72 billion last year, or about 62 percent of the total, IFIS said. Quasi sovereign issuance was at $3.83 billion and sovereign issuance at $2.23 billion.

Malaysia, one of the world's top Islamic bond markets, saw $5.86 billion of issuance last year, compared with $26.53 billion in 2007, IFIS said.

Sukuk are designed to comply with an Islamic ban on the receipt of interest. Instead, returns are derived from underlying physical assets, such as property.

Some industry officials had painted Islamic finance as a safe haven amid the deepening economic slowdown, arguing that the sector's conservative lending principles would shield investors from the worst of the fallout.

French bank BNP Paribas has forecast that sukuk issuance is likely to pick up this year and could beat 2007 levels after a dip in 2008. (For more Reuters coverage of Islamic finance, click on [ID:nISLAMIC])

(Reporting by Liau Y-Sing; Editing by Kim Coghill)