(Adds analyst comment, context, updates prices)
DOHA, Jan 21 (Reuters) - Qatar will invest $500 million in Lebanese government U.S. dollar bonds to support Lebanon's struggling economy, the Qatari Ministry of Foreign Affairs said on Monday.
Lebanon has one of the world's highest levels of public debt compared to GDP and stagnant growth.
The International Monetary Fund, World Bank and politicians have warned in recent months that reforms are urgently needed to put the debt on a sustainable footing. But more than eight months after an election, politicians have been unable to agree a new government needed to enact change and boost investor confidence.
Comments from Lebanon's finance minister 10 days ago about the public debt led to a sell-off in the country's dollar-denominated sovereign bonds, though they have partially recovered.
"Qatar's $500m purchase of Lebanese bonds is a welcome step, but a short-term fix as it will only kick the can down the road given Lebanon's challenges are structural," said Ehsan Khoman, head of MENA research at Japan's MUFG bank.
"It will take a coherent and credible fiscal consolidation strategy to offer markets and credit rating agencies more solid comfort and ultimately put the country on a more sustainable trajectory," he told Reuters.
Doha's decision to invest came after Qatar's Emir Sheikh Tamim bin Hamad Al Thani made a brief visit to an Arab economic summit in Beirut on Sunday, during which he met Lebanese President Michel Aoun.
Qatar is at the heart of a bitter row among Gulf Arab countries, which pits it against Saudi Arabia - historically a backer of Lebanese Prime Minister-designate Saad al-Hariri.
Hariri, who has Saudi citizenship, was summoned to Riyadh a year ago, briefly detained and compelled to resign as prime minister until France intervened to free him. Saudi Arabia denied that, but its relationship with Hariri and Lebanon is seen as less strong than before.
Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic, trade and transport ties with Qatar in June 2017. They accuse Qatar of supporting terrorism, which it denies.
"We wish stability and prosperity for the Lebanese republic and the Lebanese people, and that the Lebanese economy will recover. The region needs a strong and prosperous Lebanon," Qatari Foreign Minister Mohammed bin Abdulrahman Al Thani said in a statement.
Lebanon's dollar-denominated bonds rose across the curve on the news, with the 2025 issue up around 1.3 cents and the paper due in 2037 adding 2.2 cents, according to Tradeweb data. (Reporting by Eric Knecht in Doha and Davide Barbuscia in Dubai; Writing by Lisa Barrington; Editing by Alison Williams)