Adds Morgan Stanley comments in paragraphs 9-10: bond holder group no comment in paragraph 15

By Marc Jones

LONDON, May 6 (Reuters) - Venezuela's bonds rallied on Wednesday after the U.S. government gave Caracas the green light to hire advisers for what is expected to be one of the biggest sovereign debt restructuring efforts ever undertaken.

Five months on from Washington's capture of Nicolas Maduro, the U.S. Treasury Department issued a general license on Tuesday authorising "legal, financial advisory, and consulting services in connection with potential debt restructuring".

The South American country and its state oil company Petroleos de Venezuela (PDVSA) owe an estimated $150-$170 billion in debt and unpaid interest, a burden that needs to be reduced to make the economic situation viable.

Venezuela's 2031 sovereign bond USP17625AD98=TE rose almost 2.5 cents to trade above 60 cents on the dollar for the first time since 2014, Tradeweb data showed. Bonds issued by PDVSA were also at near-decade highs. USP7807HAQ85=TE

S&P Global's top sovereign analyst Roberto Sifon-Arevalo said the restructuring, when it happens, would be "big" for a number of reasons.

"There's a lot of money," he said. "And I'm curious to see what new features we are going to see with this restructuring," pointing to other landmark sovereign reworks that have introduced incentives to get them done.

KEY STEP

Momentum for a debt restructuring has been gathering since Maduro's removal in January and as relations between Washington and acting Venezuelan President Delcy Rodriguez have firmed.

The International Monetary Fund and the World Bank have also said that after a 7-year hiatus they are resuming dealings with Caracas, paving the way for the first ‌full IMF assessment of Venezuela's economy in some 20 years.

Morgan Stanley analyst Simon Waever described the U.S.' new authorisation as "yet another positive sign following the IMF recognition that the normalization of Venezuela is moving

fast."

He also said it signaled that the U.S. "does care about creditors" and eases some investors' concerns that the U.S. and Venezuelan authorities might not have been interested in resolving the country's defaulted debt.

While the U.S. Treasury's move lays the groundwork for debt talks, further steps will be required before what are likely to be both lengthy and complex negotiations can formally begin.

For now there can be "assessment, development, or preparation of debt restructuring options, proposals, and related supporting materials", it said in a statement.

However, the license does not authorise any restructuring or settlement of debt by the government or PDVSA, or direct negotiations between the government and creditors regarding restructuring.

A core group of bondholders including GMO, Greylock Capital, Fidelity, T. Rowe Price, Mangart Capital and Morgan Stanley Investment Management have said they are ready to begin restructuring negotiations.

A legal representative for the group declined to comment on the U.S. authorisation.

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