(Adds analyst comment in third paragraph.)

Sept. 28 (Bloomberg) -- The cost of protecting China’s sovereign debt from default jumped to the highest level since March 2009, according to data provider CMA.

Credit-default swap contracts on China surged 16 basis points to 170, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.

“Everyone is getting more concerned about risks accumulating domestically,” said Ju Wang, a fixed-income strategist at Barclays Capital in Singapore. “Eventually in China, the burden in the banking sector will have to be reflected in the sovereign balance sheet.”

China will permit local governments to sell bonds in a pilot program in the fourth quarter, the official Xinhua News agency said today, citing a person it didn’t identify. Local government debt grew to 10.7 trillion yuan, some 27 percent of the country’s gross domestic product, as of the end of 2010, according to a national audit released on June 27.

Developers in China face an “increasingly severe” credit outlook, which may force them to cut prices, Standard & Poor’s said in a Sept. 27 report.

--Henry Sanderson. Editors: Shelley Smith, Beth Thomas

To contact Bloomberg News staff for this story: Henry Sanderson in Beijing at hsanderson@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net