Stocks likely to fall amid U.S.-Iraq tension

A'an Suryana, The Jakarta Post, Jakarta

The Jakarta stock market could remain under pressure this week amid jitters over a possible attack on Iraq by the U.S., an analyst said.

The global tension created by the possibility of an attack has caused investors in the U.S. stock market to unload stocks. A further retreat on Wall Street could trigger a retreat in the regional and local stock markets as well.

"Should this war happen, it would jostle the Dow Jones. Later, a contagious effect could follow, as the rattling of the Dow Jones would send a negative message and possibly affect world- wide stock markets," stock analyst Fajar Hidayat from PT Trimegah Securities told The Jakarta Post Friday

The Jakarta stock market has been falling during the past three weeks. In early September, the Jakarta Stock Exchange composite index fell to 427.8. The trend continued last week, as the index again dropped to 421.

"The 400 mark could be the new psychological threshold. If the index drops well below the psychological threshold, a drastic plunge in the Jakarta stock index could eventually happen," Fajar said.

Fajar predicted that the index would hover around 405 to 435 this week.

An attack on Iraq would increase oil prices which in turn would be bad for businesses and the global economy.

Global tension has intensified as President George W. Bush spoke before the United Nations, calling on the UN to disarm Iraq.

The U.S. government is sponsoring the champaign, seeking allies in its quest to justify an attack on Iraq, which has been accused of developing and stockpiling weapons of mass destruction.

Meanwhile, in the currency market, the rupiah is expected to hover around the same level as last week due to the lack of fresh leads, an analyst said.

"No good news has come up from the domestic front," said Wawan Wiradjaja, a currency analyst.

It was quite different from the week before, as the rupiah obtained positive movement from an upgrade in the country's credit rating by the international rating agency Standard and Poor's.

The rating agency raised Indonesia's foreign currency rating following completion of the rescheduling of commercial loans owed to private creditors grouped together under the London Club.

The jitters created by the possible attack on Iraq also contributed to negative sentiment in the currency market, Wawan said.

The rupiah ended lower last week at Rp 8,965 per U.S. dollar, compared to Rp 8,915 the week before.

The rupiah ended weaker Friday as local companies bought U.S. currency to hedge their dollar exposure amid concerns over tension between the U.S. and Iraq, dealers said.

The market remained uneasy as the U.S. kept its embassy closed here Friday for a fourth day due to alleged security threats from unidentified groups thought by the U.S. government to be linked to al-Qaeda.

The market is also concerned that U.S. companies in Indonesia may face attacks from militant Muslim groups if the U.S. attacks Iraq, dealers say.

Bank Indonesia was believed to have sold the dollar on the market earlier in the day to defend the rupiah, but the amount sold was not enough to prevent the appreciation of the U.S. currency, dealers said.

The central bank has said it will intervene if necessary to support the rupiah, but it will not divulge specifics.

Dealers said profit-taking on the dollar may emerge Monday if no significant developments occur between the U.S. and Iraq.