Asian currencies shored up by sagging U.S. dollar

Asian currencies shored up by sagging U.S. dollar

SINGAPORE (Reuters): Asian currencies were mostly firmer
yesterday as the U.S. dollar remained out of favor against major
currencies and regional stock markets extended recent gains on
foreign fund inflows.

Dealers said the Singapore dollar and Malaysian ringgit were
the strongest performers. The Thai baht and Seoul won also
gained, but the Indonesian rupiah remained bogged down by worries
about the country's economy and debt problems.

"A lot of funds and investment houses have been caught long in
dollars against the regional currencies before this correction,"
said an Asian currencies dealer in Singapore.

"So they're cutting their losses. And some of them also have
to buy these currencies to pay for purchases made at the peak of
the crisis, when everything was so cheap," he said.

But dealers questioned the scope and sustainability of the
recovery.

The Malaysian ringgit reached for the 3.80 per dollar level in
late trade after breaching a stiff barrier at 3.90 as foreign
buying, fueled by a strengthening stock market, overcame domestic
dollar demand and news of a ratings downgrade.

Moody's Investors Service changed its outlook for Malaysia's
foreign currency ratings to negative, but the ringgit scarcely
hiccupped in reaction.

Further south, the Singapore dollar reached a high of 1.6505
despite talk of intermittent U.S. dollar buying by the de facto
central bank in an apparent effort to slow its rise.

Dealers said funds were unwinding long U.S. dollar positions
against the Singapore dollar after the Thai Bankers Association
(TBA) said it backed the use of the Singapore dollar as a common
currency for trading within the nine-member Association of
Southeast Asian Nations (ASEAN).

TBA president Olarn Chaipravat said on Thursday such a move
would reduce the region's demand for U.S. dollars.

Dealers and analysts were skeptical about the feasibility of
the proposal, but said it contributed to the Singapore dollar's
rise alongside the stock market's startling gains this week.

"People want to use the Singapore dollar (as a common trading
currency) just because it's stable and that's not a good enough
reason. Singapore is so small compared to the other countries,
it's not representative," the U.S. bank dealer said.

"I think these are very good levels to hedge; 1.65 is very
bottomish (for Singapore dollar), but the buying pressure of
Asian currencies is just so strong," she added.

The Indonesian rupiah was propped up by early central bank
intervention to sell dollars above the 10,000 rupiah level, but
dealers said trade was slow and driven by cross plays with the
ringgit and Singapore dollar.

The Thai baht firmed on hopes of a positive outcome to the
International Monetary Fund's (IMF) current review of Thailand's
economic reforms.

Dealers said the market was likely to absorb the central
bank's expected takeover of two medium-sized commercial banks as
the news had been largely discounted.

The Philippine peso finished lower on corporate dollar demand
and a Moody's downgrade of the banking sector, though news the
World Bank was committing $1 billion to the country eased some
pressure on the peso.

The South Korean won drew strength from inflows of portfolio
funds for stock and bond investments and news of an agreement on
layoffs between the government, labor and management.

IMF Asia-Pacific Department Director Hubert Neiss said Seoul
was no longer facing a liquidity crisis following an agreement
with global bankers to roll over $24 billion in short-term debt.

The Taiwan dollar continued to track the yen's movements,
ending a four-day rally on the yen's slide and local demand for
the U.S. dollar.

The Hong Kong dollar was steady while interest rates eased as
more banks offered longer-term funds amid calm in Asian currency
markets and speculative funds liquidated their long U.S. dollar
positions.