Stronger rupiah boosts other Asian currencies

Stronger rupiah boosts other Asian currencies

SINGAPORE (Reuters): Most Asian currencies posted robust gains
on Tuesday as mounting speculation that Indonesia was on the
verge of adopting a currency board system spurred hasty dollar
sales.

Dealers were skeptical of the viability of such a system --
under which the rupiah would be pegged at a fixed rate to the
dollar and backed by dollars equivalent to the amount of money in
circulation -- but they said foreign funds were bailing out of
the dollar pre-emptively.

"It seems the government wants to force in the fixed system
although the market seemed to view the system as not applicable
for Indonesia in its traditional form," a U.S. bank dealer said.
"People are selling dollars for now while digesting the
implications," she said.

Indonesian officials said the government was still studying
the proposal and no decision had been taken.

The rupiah surged towards the 7,000 per dollar level in
afternoon trade, a rise of more than 30 percent from late Monday
levels as players worked themselves up over the proposal.

"Now the market's expecting them to announce a currency board.
If they don't it's (the dollar) going to go all the way back up
again," said a U.S. bank dealer in Singapore.

"If they do, initially I think the market will just wait and
see what the regulations are. Is the market open to both onshore
and offshore or is it like the two-tier system that Thailand just
came out of?" she said.

The Malaysian ringgit rose more than nine percent, bursting
through barriers at 3.80 and 3.60 to the dollar as the rupiah's
rebound triggered stop-loss dollar sales in a thin market.

"Dollar/ringgit looks like it could go to 3.40. But buying of
the ringgit/Singapore dollar will help dollar/Sing stabilize
around 1.61-1.63," a dealer said.

The ringgit hit a two-and-a-half month high of 46.13 Singapore
cents on Tuesday.

Finance Minister Anwar Ibrahim said Malaysia's current account
deficit should be reasonably close to three percent in 1997 and
the ringgit had strengthened, but it was still at an
unsatisfactory level.

Anwar, on a visit to Tokyo, also said he discussed using the
yen as a trade settlement currency and Japan's Finance Ministry
was "quite positive" on the idea.

The Singapore dollar shot through 1.63 to the U.S. dollar,
levels not seen since mid-December, propelling the local stock
market almost four percent higher in late trade.

Dealers said the Monetary Authority of Singapore, the de facto
central bank, might have bought U.S. dollars at the 1.6350 level
to curb the Singapore dollar's sharp rise, but there was no sign
of aggressive intervention.

They said the Singapore dollar was likely to target a key
psychological barrier at 1.60 to the U.S. dollar soon.

The Thai baht shrugged off early lethargy and strengthened
within a whisker of the 45.00 per dollar barrier as dollar
selling against Southeast Asian currencies gathered pace.

The Philippine peso finished firmer as foreign funds sold
dollars against an improved backdrop in regional markets.

Manila traders said funds were buying pesos and investing them
in interest-bearing instruments and equities.

In north Asia, the Taiwan dollar finished stronger as
investors took advantage of the U.S. dollar's weakness in Asia.
Dealers said more gains were in store unless tensions between the
United States and Iraq escalated.

The Hong Kong dollar held steady while forwards backed off in
the face of the rupiah's rise.

Dealers said Hong Kong interest rates would reverse course and
strengthen if political conditions worsened in Indonesia in the
run-up to the March presidential election.

Only the South Korean won bucked the regional trend, ending
weaker on speculative dollar buying sparked by fears of labor
unrest after a militant union group rejected last week's
agreement making layoffs easier.