By Yoruk Bahceli

June 12 (Reuters) -

Global index compiler MSCI decided on Wednesday not to

include the European Union's debt in its government bond

indexes, a setback for the bloc's ambitions to be treated like a

state by investors.

"MSCI has observed a bifurcation of opinion within the

investment community regarding the inclusion of EU bonds in the

government bond suite of indexes," it said in a statement which

followed a consultation with investors in May.

MSCI remains "committed to closely monitoring the market's

adoption of EU bonds within the government bonds space and

intends to re-evaluate the eligibility criteria in the second

quarter of 2025," the statement added.

The EU, which expects to raise up to 712 billion euros

($772 billion) in common debt with the backing of members states

by 2026 to finance a COVID recovery fund, has quickly become one

of the biggest borrowers in global bond markets.

EU officials have pushed for the bonds, currently classified

as supranational debt, to be included in government bond

indexes.

Inclusion is seen as a crucial step to boost demand as funds

tracking the indexes would effectively become forced buyers,

boosting demand and liquidity. Anticipation that it would be

included had helped lower EU borrowing costs relative to member

states in recent weeks.

Challenges the EU would face in being included in the

indexes include the EU's pandemic borrowing programme being

temporary and the bloc not having access to direct tax receipts

in the way governments do, investors have previously said.

Another index provider, New York Stock Exchange parent

Intercontinental Exchange ( ICE ) has also launched a

consultation on how to classify the bloc's debt, the results of

which will be announced in August.

($1 = 0.9220 euros)