Asian currencies mixed, rupiah closes weaker

Asian currencies mixed, rupiah closes weaker

HONG KONG (Dow Jones): Asian currencies had a mixed day
Thursday. Although the Singapore dollar pushed up through a key
resistance level in response to renewed investment flows into the
local stock market, both the South Korean won and the Indonesian
rupiah ended Asian trading hours weaker.

The U.S. Federal Reserve's decision to raise its federal funds
target rate by 25 basis points had little impact on trading, as
this rise had long been discounted by regional markets. Less
widely expected, however, was the Fed's subsequent reversion to a
neutral monetary policy bias - a development interpreted as
broadly positive for Asian currencies.

"Market sentiment favors stronger regional currencies. Flows
into local stock markets should cap the dollar," a trader at a
U.S. bank in Singapore said.

The Singapore dollar benefited the most from this effect
Thursday, as sales of the U.S. dollar by local banks pushed the
U.S. currency below the S$1.7000 level at which many dealers had
expected the Monetary Authority of Singapore to intervene to
weaken the local currency.

A trader at a Singapore bank indicated that the MAS had
shifted its sights, and that support would now emerge at around
S$1.6950, although a further U.S. dollar selloff is probable in
European trading hours.

Late in Asian trading, the U.S. dollar was quoted at S$1.6975,
down from S$1.7003 Wednesday.

Other regional currencies failed to match the Singapore
dollar's gains.

Improved market sentiment following the South Korean
government's announcement that it had raised its official growth
forecast for 1999 to 5 percent-6 percent could not counter the
impact of dollar-buying intervention by the Bank of Korea, which
pushed the won steeply lower.

At the close of local trading, the U.S. dollar was quoted at
1,164.50 won, up from 1,157.60 won.

Among a barrage of positive economic data released Thursday
were figures showing that Korea posted a trade surplus of $2.77
billion in June. Although the figure is down from the same month
last year, the magnitude of the surplus is strongly won-
supportive, analysts said.

Helping to push the won lower however, was the finance
ministry's announcement of plans to issue up to 5 trillion won in
bonds to absorb the flood of won liquidity the government's
planned program of foreign-exchange market interventions
threatens to create.

"The balance of payments argues for some further gradual
strengthening of the won over the course of the year," said Ray
Farris, regional economist at Credit Suisse First Boston in
Singapore. "The government aims to smooth and moderate that
trend."

Data released Thursday revealed the extent of the central
bank's repeated foreign-exchange interventions to weaken the won,
as the Bank of Korea's foreign reserves rose by over $500 million
in June, to hit a record high of $61.99 billion at the end of the
month.

With the domestic economy still severely depressed, it is not
surprising that the Korean government is relying on the export
sector as the primary source of economic growth, said Farris. But
that means intervening in currency markets to avoid the kind of
exchange-rate shocks that a rapidly strengthening currency can
deal exporters struggling against tough foreign competition.

Rupiah also weakened Thursday, after falling overnight as one
New York-based market participant bought U.S. dollars to cover a
sizable short position in the U.S. currency.

Toward the end of Asian trading, the U.S. dollar had been
driven as high as 6,840 rupiah, up from Rp 6,692 late the
previous day.

With the bulk of the position believed to have been covered,
and fresh U.S. dollar offers emerging at levels above IDR6,800,
traders in Singapore said that any further dollar gains were
likely to be limited.

The U.S. dollar closed a fraction lower against the Philippine
peso in light trading. At the local close, the U.S. currency was
at 38.010 pesos, down from 38.060 pesos the day before.

With dealing rooms in Bangkok closed for half-yearly
accounting procedures, offshore trading in the Thai baht was
subdued. Late in Asia, the U.S. dollar was at 36.8250 baht, down
from 36.8700 baht the previous day.

There was no trading in the New Taiwan dollar.