Trading in emerging-market debt fell slightly during the second quarter as concerns slackened about a possible rise in U.S. interest rates, according to the New York-based Emerging Market Traders Association.

Trading volume-the value of sales and purchases-fell 12.5%, to $1.4 trillion, from $1.6 trillion in the first quarter, according to an association survey.

The study attributed the falloff in the trading of loans, bonds, and derivatives to a relatively stable interest rate environment. Trading in debt tends to increase when interest rates rise or fall.

This is the first year the association has compiled quarterly data based on information supplied by its 108 members. Data were previously compiled on an annual basis.

Market participants shrugged off the drop in trading volume. They pointed out that uncertainty about interest rates as well as a surge of investments into the market helped boost first-quarter trading.

"Speculation about interest rates in February and March made the market more volatile in the first quarter," said Paul Masco, a vice chair of the association and a managing director at Salomon Brothers Inc.

The association also suggested that $3 trillion in combined trading for the first and second quarter meant that 1997 results would be as good last year's or better. Trading totaled $5.3 trillion in 1996.

Trading in debt issued by developing countries has grown dramatically over the last several years. U.S. financial institutions handle 60% of the trading, it is estimated. BankAmerica Corp., BankBoston Corp., Chase Manhattan Corp., Citicorp, J.P. Morgan & Co., and Republic New York Corp. are among the most active traders.

Brady bonds-bank loans converted into bonds where the principal is backed by U.S. 30-year treasury bonds-were the most widely traded security, accounting for $600 billion in transactions, or more than 42% of turnover during the second quarter.

Latin America debt accounted for 78% of the emerging-market debt traded, Eastern Europe 13%, Africa 5%, and Asia 2%.

Brazil's debt was the most actively traded, with $436 billion of turnover during the first quarter, followed by Argentina's, with $298 billion; Mexico's, with $229 billion; and Russia's, with $132 billion.

Although trading is still largely dominated by Latin American debt, traders noted that the region's share of the total has been decreasing. Russian debt trading jumped 28% from the first quarter to $132 billion.

"Market participants continue to focus on the Russian turnaround," said Guido Mosca, a vice chairman of the association. "New investors continue to come into the market every day."

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