By Dinesh Nair

DUBAI, Sept 30 (Reuters) - Investors: breathe a sigh ofrelief. A spate of debt issues and initial public offerings isset to inject new life into Middle East capital markets in thefinal quarter of what has otherwise been a lacklustre year.

Debt and equity capital market activity suffered in thefirst half of 2010 as a waning global recovery and debt worriesin the European Union kept skittish investors stuck tosafe-haven assets like gold and U.S. treasury notes.

The traditional summer lull, coupled with the Muslim holymonth of Ramadan, a period when business activity typicallyslows in the mostly-Muslim Middle East, did little to help.

But analysts say refinancing needs have prompted a raft ofcorporate and sovereign debt issues that could result in amodest rebound as the year draws to a close.

"There is a huge demand for capital because of massivespending plans by government and due to the restructuring thatis taking place in the region," Jarmo Kotilaine, chief economistat NCB Capital in Riyadh, said.

"In simple terms, the pent up demand for capital is becomingmore active."

Royal Bank of Scotland (RBS) forecasts up to $10 billion ofbond sales in the Gulf Arab region in the fourth quarter alone,with issuers ranging from governments and state-owned entitiesto banks and other corporates.

On the sovereign side, investors showed strong interest inWednesday's $1.25 billion dual-tranche bond from Dubai, theemirate's first debt sale since November's Dubai World crisis.

Though Dubai is not rated by any credit ratings agencies,investors were emboldened by creditors' near unanimous approvalfor government-linked Dubai World's debt restructuring plans.

The Dubai World debt plan has eased investor risk perceptiontowards the emirate, with five-year credit default swaps (CDS)falling from a 2010 high of 655 basis points in mid-February toto around 420 basis points more recently.

Dubai World subsidiary Nakheel, builder of Dubai'spalm-shaped islands, also plans to issue a 6 billion dirhamIslamic bond as part of its debt repayment plans.

Interest has been also underpinned by global asset managerBlackRock, which said in a recent presentation that yield-hungryinvestors were looking at emerging market debt issues from thesix-member Gulf Cooperation Council where returns are seen asattractive.

On the corporate side, Burgan Bank, the commercial bankingarm of Kuwait Projects Co, said on Sept 23 it had raised $400million in a heavily oversubscribed sale of 10-year bonds.

Qatar Islamic Bank, the Gulf gas producer's largest Islamiclender, has mandated Credit Suisse, HSBC and QInvest for it itsfirst dollar-denominated benchmark Islamic bond issue. Benchmarkissues are usually $500 million plus.

Dubai's Emaar Properties plans to issue a $375 millionconvertible bond, while Saudi Arabia's APICORP plans to issue aSaudi riyal-denominated benchmark bond as it seeks to expand itsloan and equity portfolios.

IPO RECOVERY

September also saw the start of a rebound in IPOs, a popularmode of fund-raising for Middle East companies that had almostdried up in the last two years as the financial crisis bit.

In the latest test of investor appetite for Middle EastIPOs, Oman's telecom operator Nawras opened subscriptions forits offering on Sept. 15.

UAE-based Axiom Telecom could be next in line according tosources with direct knowledge of the matter. Axiom, 40 percentowned by a unit of the Dubai Holding conglomerate, isconsidering listing on Dubai's second index, Nasdaq Dubai.

Aluminium Bahrain, which is owned by the kingdom's sovereignwealth fund, also plans an IPO this year, its chairman has said.

Experts say appetite for these offerings is expected to bestrong but pricing could be crucial and may have to take intoconsideration the cautious market environment.

"IPOs which were in the pipeline for some time are expectedto come to the market due to improved sentiment," said AjeevGopinath, associate vice president for asset management at GulfBaader Capital Markets in Muscat.

"Recent issues getting subscribed by investors wouldindicate appetite in the region. Pricing will be an importantfactor that will drive interest in current market conditions."

Further IPOs could come from the energy, telecom and retailsectors and from the sale of government-owned assets, expertssay, a stark contrast to the focus on real estate and financialequity issuance in the pre-crisis days. (Editing by Lin Noueihed)