(Updates prices, adds investor quotes)
By Sujata Rao
LONDON, Dec 7 (Reuters) - Venezuelan dollar bonds rose strongly on Monday after the opposition beat the ruling Socialists in a parliamentary election at the weekend, raising hope of at least some economic reform in the crisis-ridden country.
Bonds from the sovereign as well as state oil firm Petroleos de Venezuela (PDVSA) rose as much as 4.2 cents on the dollar, moves expected to extend further if the opposition fulfils its expectations of a two-thirds majority.
Opposition Democratic Unity leaders said on Monday they had reached the crucial bar of two-thirds of seats - but there was no confirmation of that from the national election board.
The opposition coalition has so far won 99 seats, against the Socialists' tally of 46 seats, with some districts still to be counted. President Nicolas Maduro has called on his supporters to accept defeat.
Sovereign bonds retreated from the highs reached earlier on the day. Issues maturing in 2022 were last up 3.05 cents after reaching a 10-day high of 52.800 earlier in the day. The 2028 rose 2.6 cents, while the 2038 issues firmed up 2.6 cents. The 2027 issue, considered the benchmark for Venezuela, were last up 2.59 cents , according to Thomson Reuters data.
PDVSA's 2024 issue rose as much as 1.9 cents , while the 2027 bond were last up 1.9 cents .
"Bonds were up four or five points at the open and economic adjustment to currency regime, price controls, fuel subsidies could also be forthcoming," said Anthony Simond, emerging market debt research analyst at Aberdeen Asset Management. Aberdeen added to its Venezuelan bond holdings two weeks ago on the expectation the opposition would win the election.
The outcome makes Venezuela the latest Latin American country to swing away from the left, after the opposition's election win in Argentina and the diminishing popularity of Brazil's President Dilma Rousseff.
Venezuelan bonds have outperformed in recent months on hopes the opposition would trounce Maduro's increasingly unpopular government. But they trade around 35 to 43 cents in the dollar, levels that price in a strong probability of default as the OPEC state's economy has bucked under the oil price collapse.
Socialists have lost support after presiding over a declining economy, the highest inflation in the Americas, chronic shortages of basic goods and sky-high crime rates. The economy is expected to contract more than 5 percent this year while inflation is over 80 percent.
The average premium of Venezuelan bonds over U.S. Treasuries contracted 18 basis points to 2,680 bps on the EMBI Global index on Monday.
While still the highest yielding emerging market credit with more than double the premium paid by Mozambique or Iraq, spreads have contracted more than 600 basis points since August.
Investors expect more price gains if the opposition scores a two-third majority.
"The opposition weighing in Congress doesn't change oil prices, but it does give them power to change foreign exchange policies and allocation of resources that could improve the economy and the country's ability to pay its debt," said Jim Carlen, a Minneapolis-based senior portfolio manager for the emerging markets fixed-income team at Columbia Threadneedle Investments.
But many remain pessimistic given the scale of the challenge, with Jan Dehn, head of research at emerging markets asset manager Ashmore, saying Venezuela would not be "a sudden turnaround story". Crude prices around $42 per barrel are a serious problem, given oil makes up 95 percent of exports.
"It's clear the opposition won, even without the specific number yet, but we don't know the specifics of what will happen going forward," said Yong Zhu, senior portfolio manager of the DuPont Capital Emerging Markets Debt Fund. The fund is maintaining its overweight position in Venezuela.
"Can they move forward in a constructive way and take Venezuela away from the brink?" Dehn said. (Additional reporting by Claire Milhench and Tariro Mzezewa; Editing by Janet Lawrence and Alistair Bell)