U.S. stimulus plan buoys dollar

U.S. stimulus plan buoys dollar

Dow Jones, Singapore

The dollar advanced against most Southeast Asian currencies Tuesday, but slipped against the South Korean won and New Taiwan dollar.

Expectations that a new economic stimulus program in the U.S. could boost the economy and equity markets spurred buying interest in the dollar.

President George W. Bush's US$675 billion economic plan to be unveiled later Tuesday would eliminate all taxes paid on corporate dividends paid to shareholders, and accelerate income tax cuts planned as far forward as 2006.

The dollar was helped in the region to a lesser extent by a new round of rhetoric from Japanese officials stating their preference for a weaker yen.

However, geopolitical concerns remain a potential source of vulnerability for the dollar. Analysts said belligerent comments by Iraqi leader Saddam Hussein in a speech Monday heightened concerns that a U.S.-led invasion of Iraq is inevitable.

Domestic factors were also in play in Asia, with the Singapore dollar coming under pressure after the International Monetary Fund (IMF) suggested the country may need to allow its currency weaken and cut taxes to preserve its economic recovery.

Late in Asia the U.S. dollar was quoted at S$1.7417, up from S$1.7380 late Monday.

Although the IMF predicted that the Singapore economy would grow by a respectable 4.1 percent this year, the forecast assumed that war in Iraq or terrorism wouldn't disrupt global economic activity.

If the risks materialize, the Singapore Monetary Authority should stand ready to ease monetary policy, which would be done via the foreign exchange rate.

The IMF also suggested the government should accelerate the pace of income tax cuts, given the global trend toward lower direct taxes.

Exporters again sold U.S. dollars as they stocked up on the local currency ahead of the lunar New Year, which begins Feb. 1. The exporters need more cash for bonus payments that will be made ahead of the holiday.

However, offshore non-deliverable forward contract players and importers covered their short U.S. dollar positions when the U.S. dollar neared NT$34.55, which limited the local dollar's gains.

The won benefited from dollar inflows from foreign investors who were big buyers in the local stock market in recent sessions.

The dollar closed at 1,186.5 won, below Monday's finish at 1,188.9 won.

The Philippine peso was pressured by companies stepping up their purchases of the U.S. currency in both the spot and forward markets. The dollar closed at 53.460 peso on the Philippine Dealing System, up from 53.380 peso Monday.

The Indonesian central bank intervened to keep the rupiah on an even keel against the dollar.

Near the end of Asian trading the dollar was quoted at Rp 8,935 rupiah, unchanged from late Monday.

Bank Indonesia was believed to have sold the dollar when the pair rose to its intraday high of Rp 8,960 on concerns over continued protests against recent fuel and electricity price hikes.

Against the baht, the dollar was quoted at 42.835 baht late in Asia, unchanged from late Monday.