Taiwan Dollar Falls on Increasing Risk Aversion; Bonds Decline

By Bob Chen and Yu-huay Sun

Oct. 2 (Bloomberg) -- Taiwan's dollar fell for the fifth time in six days as increased demand for the U.S. currency damped investor appetite for emerging-market assets. Government bonds fell.

The currency weakened after the cost of borrowing U.S. dollars for one month in London rose to the highest level since January on speculation the deepening credit crisis will mean more banks will have to be rescued. Overseas investors were net sellers of Taiwan stocks for the last six days, selling NT$29.3 billion ($913 million) more than they bought during the period, stock exchange data show.

``You are seeing tight liquidity on the domestic currency front as well as the dollar front,'' said Irene Cheung, a corporate director of local-markets trading at ABN Amro Bank NV in Singapore. ``For Taiwan, when you have a U.S. dollar shortage, you just go and look for all the dollars that you can. One way is to get out of the emerging markets.''

The island's currency fell as much as 0.4 percent to NT$32.158 against the U.S. dollar, according to Taipei Forex Inc. It traded 0.3 percent down at NT$32.13 at 3:02 p.m. local time.

The central bank unexpectedly reduced its benchmark interest rate on Sept. 25 for the first time since 2003 to help counter an economic slowdown.

The U.S. Senate approved a $700 billion financial-rescue plan that funds the biggest government intervention in the markets since the Great Depression. The package now goes to the House of Representatives, which rejected an earlier version of the measure.

``There will be continued selling in the Asian markets,'' ABN Amro's Cheung said. ``The possibility of the bailout plan passing has already been factored in by the market, so it's not a new factor.''

Bonds Fall

Ten-year government bonds fell for a third day as traders awaited further progress on the U.S. government's financial- market rescue plan.

``There are very few people participating in the bond market,'' said Sharon Chen, a debt trader at KGI Securities Co. in Taipei. ``People are more cautious before the bail-out plan is settled.''

The yield on the benchmark 2.125 percent bond due September 2018 climbed 3.7 basis points to 2.165 percent at the 1:30 p.m. close in Taipei, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The price fell 0.326, or NT$326 per NT$100,000 face amount, to 99.646. A basis point is 0.01 percentage point.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net; Yu-huay Sun in Taipei ysun7@bloomberg.net.