NAIROBI: The Kenyan shilling extended its losing streak against the dollar on Wednesday on the back of demand for the US currency from importers, and was pressured further by high liquidity following government debt repayments.

Traders said the market was wary of a further slide in the local currency, thanks to foreign investors cutting their positions in the debt market after the 91-day Treasury bill yield eased to a single digits last week.

At 0800 GMT, commercial banks posted the local currency at 86.30/40 to the dollar, weaker than Tuesday's close of 85.90/86.10 and the lowest level since Jan. 18.

"The market has been panicky, because the perception in the market is that the shilling will lose further based on easing interest rates," said Jeremiah Kendagor, head of trading at Kenya Commercial bank.

The central bank is due to sell 2 billion shillings of 182-day Treasury bills later on Wednesday. The yield on the 6-month paper fell 116 basis points at last week's sale to 10.915 percent.

Traders expected the central bank to continue with its intervention in the market by selling dollars to commercial bank and draining excess liquidity, which was exerting pressure on the shilling. The local currency has lost 0.9 percent this week.

The average interbank rate fell to 17.7 percent on Tuesday, from 18.4 percent a day earlier, signalling a build up of shilling liquidity in the system.

Solomon Alubala, head of trading at Co-operative Bank said the next target for the dollar was 86.50, adding that the shilling would continue easing against the dollar, on the back of the shaky international markets due to the eurozone crisis.