UPDATE 1 - US junk bond default rate falls to 0.8 pct -Fitch

NEW YORK, Jan 10 (Reuters) - The U.S. junk bond default rate ended 2006 at 0.8 percent, down from 3.1 percent in 2005, and will likely stay below its long-term average of about 5 percent this year, Fitch Ratings said on Wednesday.

An insatiable demand for high-yielding investments has given risky companies access to funding, helping them avoid default, Fitch said in a statement.

"While Fitch believes that defaults will remain below average in 2007, the very low default rate experienced in 2006 is not sustainable and was due more to favorable funding conditions rather than credit quality gains," the agency said.

The par value of bonds defaulting last year plummeted by 75 percent to $5.8 billion, down from $22.8 billion in 2005, Fitch said. Two large defaults in the automotive sector, from Dana Corp. and Dura Automotive , contributed half of the year's default tally, Fitch said in a statement.

The default rate among the weakest issuers, those rated "CCC" or below, was the lowest in 20 years, at 4.5 percent, Fitch said. Bonds with those ratings typically default at an annual 25 percent rate, the rating agency said.

Such issuers were only able to pay their hefty debt burdens by tapping external funding "and have no cushion to sustain them if business or borrowing conditions soften," Fitch said.

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