Malaysian Ringgit Advances as U.S. May Cut Rates to Spur Growth

By David Yong

Oct. 29 (Bloomberg) -- Malaysia's ringgit rose for a second day as stocks gained on speculation the U.S. Federal Reserve will reduce its benchmark interest rate today to spur growth in the world's biggest economy. Bonds were little changed.

The currency advanced the most in two weeks as traders bet the Fed will lower its target rate for overnight loans to 1 percent from 1.5 percent. The U.S. economy shrank 0.5 percent last quarter, the most since the 2001 recession, a government report may show tomorrow. Malaysia shipped 11 percent of its goods to the U.S. in the first eight months of this year, its biggest overseas market after Singapore.

``Rate cuts will be a short-term confidence booster for markets, though we may still need some fiscal stimulus going into next year,'' said Nor Alfian Din, a senior currency trader at Maybank Islamic Bhd. in Kuala Lumpur. ``This could stop a slide in the ringgit.''

The ringgit rose as much as 1.2 percent to 3.5375 per dollar before trading at 3.5750 as of 1:26 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It declined to 3.6005 yesterday, the weakest since December 2006.

The MSCI Asia Pacific Index of shares rose for a second day from a five-year low on speculation the Fed will today add to its five interest-rate cuts this year. A reduction to 1 percent today will increase the extra yield offered by the Malaysian benchmark to the most since Bank Negara Malaysia introduced its overnight policy rate in April 2004, according to Bloomberg data.

Bank Negara on Oct. 24 kept its overnight rate at 3.5 percent, unchanged in 20 straight meetings since April 2006. Policy makers hold their final meeting of 2008 on Nov. 24.

Bonds Little Changed

Ten-year notes were little changed, keeping yields at the highest in two weeks, before a government debt auction tomorrow.

The yield on the 4.24 percent note maturing in February 2018 held at 4.2 percent, according to Bursa Malaysia Bhd.'s electronic bond exchange. It reached 4.08 percent on Oct. 22, the lowest since June.

The finance ministry will auction 3.5 billion ringgit ($979 million) of new securities maturing in October 2018 on Oct. 30. It also plans to sell 2018 notes, which will comply with Islamic laws, in a private offering, according to its sale calendar.

The notes last yielded 4.25 percent in pre-auction trading, according prices by to First Taz Tradition Sdn., a money broker in Kuala Lumpur.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.