UPDATE 1-MBIA Insurance CDS trade close to default levels

(Updates prices, adds analyst quote, rewrites throughout)

NEW YORK, June 24 (Reuters) - Credit default swaps on MBIA Inc's (MBI.N) insurance arm leaped to a new record on Tuesday as investors hedged their exposure to the insurer and concerns grew about the company's ability to reinvigorate itself after the loss of its top ratings.

Credit default swaps on MBIA Insurance Corp surged to 46.5 basis points upfront, or $4.65 million to insure $10 million in debt in addition to annual premiums of 500 basis points, from 39.5 basis points at Monday's close, according to broker Phoenix Partners Group.

Based on Monday's close, MBIA Insurance Corp's credit default swaps are trading at levels that imply the world's largest bond insurer is one step away from default, according to the credit strategy group of Moody's Investors Service.

Credit default swaps on bond insurers have been rising since they lost their top ratings as dealers and managers of some synthetic collateralized debt obligations hedge their exposures to the companies, said Tim Backshall, chief strategist at Credit Derivatives Research in Walnut Creek, California.

Synthetic CDOs are portfolios of credit default swaps that are divided into tranches of varying risk and returns.

"There is also potential forced selling by CDO tranche holders who have seen downgrades and are no longer able to carry the non-AAA debt," Backshall said.

Moody's last week stripped the bond insurer of its last triple-A rating, cutting it five notches to "A2," the sixth highest investment grade. Standard & Poor's and Fitch Ratings rate it "AA," the third highest investment grade.

The downgrade by Moody's was more severe than expected, and the company said it may now need to put up nearly $7.5 billion to meet collateral posting requirements and potentially pay off obligations following Moody's action.