Sept. 22 (Bloomberg) -- The Indonesian rupiah and Philippine peso led gains in Asia this week as a cut in U.S. interest rates eased concern the global economy will slow, boosting demand for riskier assets.

All 17 currencies from the region's largest economies climbed against the dollar yesterday after the Federal Reserve surprised markets with a bigger-than-expected half-percentage- point reduction in its benchmark Sept. 18. Key stock indexes in Southeast Asia advanced on speculation the Fed's decision will boost the region's exports and corporate earnings and give Asian central banks more leeway to lower borrowing costs.

``We've seen a retreat of risk aversion and that's benefited Asian currencies,'' said Magnus Prim, a senior foreign-exchange strategist at Skandinaviska Enskilda Banken based in Singapore. ``It's really a knee-jerk reaction to the Fed's decision, though the worries over the U.S. economy are far from over.''

The rupiah rose 2.3 percent this week, the biggest gain since July 2006, to trade at 9,168 against the dollar. The Philippine peso climbed 2.1 percent over the same period, the most in nine weeks, to 45.30. South Korea's won gained 0.8 percent to 921.10, after reaching 917 today, the strongest in almost two months.

Interest-rate futures show traders have assigned 72 percent odds the U.S. central bank will cut rates another quarter-point to 4.5 percent at its next meeting on Oct. 31 from a 26 percent chance a week ago.

Restored Confidence

Fed rate cuts have helped restore investor confidence after defaults on U.S. subprime mortgages amid the worst housing slump in 16 years led to speculation the U.S. would slip into recession, damping demand for Asian exports.

Lower U.S. rates increased the appeal of emerging-market assets, especially those in Indonesia and the Philippines, whose bonds offer the highest yields in Southeast Asia.

Investors should buy the peso and the rupiah, according to UBS AG, the world's second-biggest currency trader, and HSBC Holdings Plc, Europe's largest bank.

Standard Chartered Bank Plc recommended investors stop betting on peso gains because the chances of a resumption of risk aversion are growing.

South Korea's Vice Finance Minister Kim Seok Dong on Sept. 20 said the Fed's rate cut will have a positive effect on the Asian nation's economy and help ease ``nervousness'' in financial markets. Central banks in Korea and Indonesia this week said their currencies are at acceptable levels.

Positive for Asia

The Fed cut is a positive for the Asian region, which can withstand a slowdown in the U.S. economy, James McCormack, head of Asian sovereign ratings at Fitch Ratings in Hong Kong, said Sept. 19. Malaysia's Second Finance Minister Nor Mohamed Yakcop Sept. 20 said he's ``confident'' the economy will expand between 6 percent and 6.5 percent in 2008.

``Asia is still the fastest-growing region in the world and Asian currencies look quite attractive,'' said Sia Ket Ee, an economist at OSK Research Sdn. in Kuala Lumpur.

The Malaysian ringgit gained 1.1 percent this week to 3.445 against the U.S. currency.

The Singapore dollar touched S$1.5006 yesterday, the strongest since 1997. The island nation's exports rose at the fastest pace in seven months in August, a government report showed Sept. 17.

The Monetary Authority of Singapore, the central bank, seeks a ``modest and gradual appreciation'' in its dollar and manages it against an undisclosed band based on a basket of currencies of Singapore's biggest trading partners.

To contact the reporters on this story: Jake Lee in Hong Kong at jlee127@bloomberg.net.

Last Updated: September 21, 2007 19:14 EDT