Most Asian currencies drifted lower on Tuesday as investors shunned risky assets due to renewed fears about credit markets, but they later cut losses on news that Citigroup would sell a $7.5 billion stake.
The South Korean won, the second worst performer in Asia against the dollar so far this year, steadied near 929 per dollar, virtually flat from late Asian trade on Monday. It fell earlier as far as 934.2.
The high-yielding Philippine peso rebounded to 42.76 per dollar, up a fifth of a percent from Monday's close, amid signs of more money inflows and after news of Citigroup's stake sale restored some risk appetite. It had briefly dropped to 43.05. "We still see flows coming in - that's why the peso is strengthening," said a Manila-based trader.
He said some investors had re-entered carry trades as regional stocks pared losses after Citigroup Inc said it would sell a stake to the Abu Dhabi Investment Authority, which cheered up the banking sector after its hammering from credit-related losses. MSCI's measure of Asia Pacific stocks excluding Japan recovered, but was still down 1 percent.
The dollar pulled away from a 2-1/2-year low versus the yen on the Citigroup news. A continuous rise in Asian currencies against the dollar is not certain after the US currency's weakness this year. "We are still cautious. We are expecting a modest dollar rebound in early 2008," said David Mann, currency strategist at Standard Chartered Bank.
The high-yielding Indonesian rupiah, the worst-performing Asia currency against the dollar so far this year, hovered near 9,390 per dollar after falling as far as 9,406. The Chinese yuan hit a post-revaluation high of 7.3855 per dollar amid signs that Chinese policy makers are keen to let it rise faster to help fight inflation.
Analysts say the yuan's faster appreciation is underpining other regional currencies at a time of persistent jitters about the health of the US economy. Visiting French President Nicolas Sarkozy urged Beijing on Monday to let the yuan rise more swiftly to help reduce global trade imbalances, including a swelling European deficit with China.
But Premier Wen Jiabao reiterated his well-worn stance that Beijing would introduce greater currency flexibility over time, but at its own pace. However, an EU delegation, including ECB President Jean-Claude Trichet, is expected to reiterate that message in a visit to the Chinese capital that began earlier on Tuesday.
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