LONDON (Reuters) - The threat of soaring government debt supply destabilising financial markets has intensified, the world's top central banking advisory body said on Tuesday, as it urged policymakers to act swiftly to prevent economic damage.

Claudio Borio, head of the Bank for International Settlements' monetary and economic department, said he was on alert for a government debt glut causing bond market ructions that could spill over into other assets.

And while markets have not yet suffered so-called "bond vigilante" attacks, where debt investors send state borrowing costs sharply higher to force nations away from fiscal profligacy, policymakers should not wait for this to happen, he said.

"Financial markets are beginning to realise they will have to absorb these growing volumes of government debt," he said as the BIS published its latest quarterly report.

"It takes time for policymakers to adjust policies and if they wait for markets to wake up, it's going to be too late."

Large government budget deficits suggest that sovereign debt could rise by a third by 2028 to approach $130 trillion, according to the Institute of International Finance (IIF) financial services trade group.

U.S. President-elect Donald Trump's proposed tax cuts are expected to swell the nation's $36 trillion debt pile by almost $8 trillion, while the UK's new Labour government in its October budget raised previous five-year borrowing estimates by about 142 billion pounds ($181.55 billion).

Bond fund PIMCO said on Monday it plans to diversify its government bond exposure by buying outside the United States, where its outlook on long-term government debt is bearish due to a deteriorating fiscal profile.

The BIS report also cited political turmoil over France's budget deficit and expansionary policy in Japan as reasons for "the re-emergence of fiscal concerns."

The yield on the 10-year U.S. Treasury, which influences price movements in sovereign, corporate and household debt worldwide, has risen by about 56 basis points (bps) since September, to around 4.22%.

Traders widely anticipate a Federal Reserve rate cut this month but the BIS report said there was a supply-demand imbalance in the Treasury market, with dealers holding record amounts of unsold U.S. government debt on their books.

With U.S. Treasury investors facing the twin perils of debt oversupply and stimulus spending boosting inflation, there were "more reasons to be worried now" than when the BIS cautioned about sovereign debt earlier this year, Borio said.

The depth and liquidity of the $28 trillion Treasury market could insulate it from a sudden sharp rise in debt yields for some time, Borio said.

"But it does mean that once (warning signs) show up, the impact on the global economy is bigger," he added.

Elsewhere in its report, the BIS noted increasing uncertainty about where global interest rates would settle as major central banks embark on cuts but the global economy remains resilient, buoyed by strong U.S. growth.

Global credit conditions remain "unusually accommodative," the report noted, and U.S. bank lending standards have loosened after the Nov. 5 election while Wall Street stocks rallied.

The BIS noted that higher volatility in currency markets had reduced the incentive for traders to rebuild their positions following a sharp unwind in August of so-called carry traders that sparked ructions across world markets.

($1 = 0.7822 pounds)