By Daniel Bases
NEW YORK, March 5 (Reuters) - The drawn-out decline of cancer-stricken Venezuelan President Hugo Chavez spurred buying of the country's high-yielding debt over many months and his death on Tuesday will likely cause prices to rally a little more, investors and analysts said.
Investors foresee increasing potential for Venezuela to move back toward market oriented economic policies and away from Chavez's socialist "Bolivarian revolution."
A charismatic firebrand, Chavez created a highly centralized political system, overseeing the widespread nationalization the country's industries. His death was announced by Vice President Nicolas Maduro after financial markets closed.
Analysts and investors expressed caution over snapping up too much of Venezuela's attractively priced debt, which offers yields significantly higher than most anywhere else in the world.
"I think the bonds trade up even as people sell into the rally. But overall, even with Chavez out of power and the opposition now with a chance to win, this will give the bonds some wind to fill their sails," said Russ Dallen, head of Caracas Capital Markets, a Venezuela-based investment bank that trades Latin American debt.
"The next mountain top is the election ... We are entering a period of uncertainty and for investors that is the scary part," Dallen said.
Venezuelan sovereign bonds and those of state-run oil company Petroleos de Venezuela SA (PDVSA) rallied on news that Chavez's condition had worsened. The rally faded, however, after Maduro alleged that "imperialist" conspirators had infected the president with cancer, among a plethora of conspiracies with domestic opponents.
On June 30, 2011, when Chavez announced that he had cancer, yields on the 2027 bonds were hovering above 13 percent. They hit a low of 8.6 percent a month ago.
Venezuela's 2027 benchmark Global bond ended the day flat with a yield of 8.91 percent while PDVSA 17's also ended flat at a yield of 8.99 percent
"The announcements today from Maduro should be considered more important than Chavez's death ... Maduro spooked the market with his aggressive tone which challenges the perception he would be Chavismo-light," said Siobhan Morden, emerging market debt strategist at Jeffries & Co in New York.
"You have to question the idea of Maduro being more moderate. His statements were pretty radical and now you question whether the market should have rallied all these months on this idea of a transition toward Chavismo-light?" she said.
"Chavismo" is the term used to describe the swaggering brand of politics Chavez practiced over his 14 years in office. He became a hero to Venezuela's poor by providing subsidized food and free health clinics, paid for with revenue from oil sales.
His supporters, known as Chavistas, will likely give their sympathy and their votes to Maduro in elections expected within 30 days. He will most likely face Henrique Capriles, a centrist opposition leader who lost to Chavez in national elections in October.
Moody's investors service said the country's credit rating would be more affected by the political transition than the death of Chavez because the next leader will have a more tenuous hold on authority.
Moody's revised the credit outlook on the country's speculative B2 rating to negative in January.
"He was just such a big personality and our concerns are that in the short-term the biggest beneficiaries of his patronage are not just going to go away," said Hans Humes, president of Greylock Capital Management.
"Our sense is the debt trades up from here, but we're taking a wait and see attitude. People should be cautious."