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imageNAIROBI: The Kenyan shilling inched down on Wednesday due to strong demand for dollars from companies and banks.

Nairobi's benchmark NSE-20 share index slipped on mild profit taking.

At the 1300 GMT market close, commercial banks quoted the shilling at 88.00/88.10 to the dollar, recovering from an intra-day low of 88.10/88.20. The shilling had closed at 87.95/88.05 on Tuesday.

"There has been weakness in the shilling due to corporate demand and short-covering by banks, which forced it to break the 88 level," Nahashon Mungai, trader at KCB Bank, said.

Traders said easing liquidity in the money markets, which makes it cheaper for banks to build up dollar positions, was also putting pressure on the local currency.

The weighted average interest rate for the overnight interbank borrowing market was barely changed at 11.3488 percent on Tuesday from 11.3649 percent the previous day, pointing to an easing of liquidity.

Overnight rates had shot up in the past two weeks after the government delayed releasing funds to departments and local authorities.

Market participants said the shilling could weaken if it falls below 88.20, but there was a good chance the central bank would pump in dollars at that level, in line with the bank's previous signals that it was not comfortable with a weakening beyond that point.

In the stock market, the NSE-20 lost a quarter of a percentage point to close at 5,010.13 points as investors booked gains.

Shares rose to their highest in six months last week, on bets that interest rates will come down and push investors into equities, although the rally has been punctuated by pockets of profit taking.

In the debt market, bonds worth 368 million shillings ($4.19 million) were traded, a steep drop from the previous day's volume of 2.18 billion shillings.

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