At 0851 GMT commercial banks quoted the shilling at 2,655/2,665, unchanged from Monday's close.

The Ugandan shilling has lost 6.6 percent to the dollar this year.

"Some multinational firms that hold their cash in dollars are going to be making some conversions to pay salaries and meet all other last-minute expenses which are done in local currency," said Peter Mboowa, a trader at KCB Uganda.

"These conversions will support the shilling and it should gain some additional ground before Christmas break starts."

A loose monetary policy, cuts in foreign aid and a recent downgrade of Uganda's economic outlook by ratings agency Standard and Poor's are seen by analysts as likely to sap the shilling against the greenback in the medium to long term.

The central bank cut interest rates again this month, by 50 basis points to 12 percent, to try and shore up sluggish economic growth.

Uganda's major Western donors meanwhile have cut off aid over graft allegations and the central bank calculates the cuts will depress growth in Africa's biggest coffee exporter and prospective crude oil producer by 0.7 percent.

On Dec. 11, Standard & Poor's downgraded the outlook on Uganda's B+ and B long and short-term sovereign credit ratings to negative due to the aid cuts and potentially depressing investor confidence in the local currency.

"Market sentiment points to a stable shilling with a downside (strengthening) bias as a result of lacklustre corporate demand," said Stanbic Bank in a market brief.

Demand for dollars is tailing off as most businesses wind down their activities ahead of the festive season.