Rupiah continues to strengthen as stocks sink in mixed trade

JAKARTA (JP): The rupiah continued to strengthen on Tuesday to Rp 7,175 against the U.S. dollar on offshore-buying propelled by the heartening political development at home, dealers said.

The local unit gained 5.15 percent from Monday's close of Rp 7,565 per dollar.

Traders attributed the gain of the rupiah particularly to modest buying of the currency by offshore banks, although local companies also did some earlier in the day.

Traders said foreign investors were encouraged by positive development both on economic and political fronts.

"Investors are inspired by falling inflation and an expectation of a smooth political transition," a dealer at a private bank said.

Traders expect the rupiah, which on Tuesday rose to its highest level since October last year, will continue to strengthen toward the new psychological level of Rp 7,000.

Indonesia held its landmark general election last week, which unexpectedly turned out to be peaceful.

Although many were earlier worried about possible election tampering due to the snail's pace of the vote count, investors expressed a renewed optimism particularly after the ruling Golkar party said on the weekend it would accept a defeat, dealers said.

Preliminary results show the Indonesian Democratic Party of Struggle of popular opposition leader Megawati Soekarnoputri continues to take a commanding lead against Golkar.

Traders said comments by Megawati's top economic advisers Kwik Kian Gie and Laksamana Sukardi that the party would adhere to the IMF-sponsored economic reform programs also reassured investors.

Kwik had earlier commented that the party would consider fixing the exchange rate of the rupiah to the dollar.

"With the political risk sinking, the rupiah is relatively undervalued compared to other units in the region," the dealers said.

Meanwhile, share prices declined 1.4 percent on Tuesday in mixed trade despite the stronger rupiah. The Jakarta Stock Exchange composite index fell by 9.289 points to 670.160, but there were 90 gainers against 86 losers, and 50 stocks unchanged.

Volume was 1.463 billion shares valued at Rp 1.109 trillion.

Dealers said profit taking was a positive thing after rallies during the past several days.

"The sentiment is still there," a dealer said, adding that he expected the market to resume its rally later in the week.

Dealers said investors were shifting attention from large cap stocks to second liners.

Telecommunications counter Indosat fell by Rp 450 to end at Rp 15,900, while Telkom was down Rp 150 at Rp 4,600.

Mining counters Aneka Tambang was down Rp 25 to finish at Rp 1,675 and Tambang Timah declined Rp 225 at Rp 7,300.

Gudang Garam fell Rp 950 to finish at Rp 17,150, while HM Sampoerna declined Rp 425 to rest at Rp 17,550.

Other Asian currencies generally ended higher Tuesday against the U.S. dollar, with the South Korean won rose to 1,166 to the greenback from 1,170.

The Philippine peso cloed the day at 37.820 from 37.855, and the Thai baht at 36.95 from 36.995.

The Taiwan dollar closed higher at 32.384 to the US dollar from 32.427, as central bank intervention offset early gains amid foreign capital inflows and exporters' sales, dealers in Taipei said.

The possibility of further central bank intervention hung over the Japanese yen which ended Asian trade at 120.25 to the dollar, up slightly from its finish of 120.53 yen in New York, and 120.40 in Singapore the day before.

In London, the euro slipped back below 1.04 dollars early on Tuesday as investors nervously anticipated key U.S. data which could herald a dollar-boosting interest rate increase.

The euro dipped as low as 1.0384 dollars from 1.0421 late on Monday but by late morning it was flirting with the 1.04-dollar threshold again.

The dollar meanwhile was relatively stable against the yen and the pound lost a little ground after weaker-than-expected inflation figures were released for May.

The overriding factor in the currency markets however remains the prospects for U.S. interest rates, and Wednesday's inflation data could provide a key indication of the stance the US monetary authorities are likely to take at their next rate-setting meeting on June 29-30.

The euro was being traded at 1.0395 dollars from 1.0421, 125.12 yen from 125.37, 0.6476 pounds (0.6473), 1.5920 Swiss francs (1.5945).

The dollar was being traded at 120.38 yen (120.32) and 1.5337 Swiss francs (1.5307).

Sterling was being traded at 1.6037 dollars (1.6099), 193.15 yen (193.62) and 2.4603 Swiss francs (2.4623).(rei)