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Capital Markets
August 10, 2007

Central banks sell dollars to support currencies
Central banks in Malaysia, Indonesia and the Philippines intervened to sell dollars on August 10, traders said, as their currencies succumbed to selling of risky assets amid escalating credit worries, said a Reuters report.

The sell-off in risky assets gathered momentum on August 9 after news France's BNP Paribas bank had frozen funds hit by the troubled US subprime mortgage sector, forcing the European Central Bank to pump money into money markets. The US Federal Reserve also injected cash on a smaller scale.

"I heard they sold dollars at 45.75 and I am still seeing offers at that level," said a trader in Manila, referring to intervention in the Philippine peso. The peso fell nearly a percent from Thursday's close before being supported at the day's low of 45.75.

The ringgit fell to an end-June low of 3.48 per dollar before suspected central bank intervention, and the high-yielding rupiah hit its lowest in a year. Traders said the Malaysian central bank sold dollars around 3.4780/90.

Meanwhile, a senior Bank of Korea official said the central bank would not supply dollars to ease what it regarded as a lack of short-term supplies in the market.

Singapore's central bank said it stood ready to supply funds to the market if needed.  Still, the Asian currencies stayed close to their lows, with the ringgit quoted near 3.48.

"I think they are in the market to smooth excessive volatility," said Emmanuel Ng, a strategist at OCBC Bank.

"In this environment, especially with central banks like the ECB, Fed and the BOJ injecting liquidity to forestall any systemic stress, the market is understandably jittery.

"In such a scenario, further weakness in Asian currencies cannot be ruled out, simply because of risk aversion and the fact that funds may have to be re-channelled," he said.

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