March 22 (Bloomberg) -- Taiwan's stocks and currency tumbled as street protests challenged the legality of President Chen Shui- bian's quarter-point re-election victory and the Nationalist Party accused him of faking an assassination attempt.

The benchmark TWSE index tumbled 6.7 percent, led by Taiwan Semiconductor Manufacturing Co., and may fall further tomorrow because the exchange limits daily declines in shares to no more than 7 percent. The Taiwan dollar fell 0.3 percent, its biggest drop since October. Bonds gained, driving the yield on the 10- year bond 16 basis points lower to 2.17 percent.

``Unless the crowd at the Presidential Office disperses, the market will have strong selling pressure for the whole week at least,'' said Tracy Chen, who oversees $73 million of assets at Prudential Securities Investment Trust Co. in Taipei.

Protesters, who numbered up to 30,000 yesterday, vowed to continue their protest until a recount in an election decided by about 30,000 of 13 million votes cast. The High Court may hear the Nationalists' petition for a recount today, though that doesn't guarantee an immediate ruling.

Taiwan Finance Minister Lin Chuan, who had urged investors to remain calm, scheduled a press briefing at 11 a.m. in Taipei.

None of 644 stocks on the TWSE index showed a gain 90 minutes into trading. Taiwan Semiconductor Manufacturing Co., the biggest capitalized stock and the world's largest supplier of made-to-order chips., led stock declines in the first trading since the election Saturday and the assassination attempt Friday. Its shares were down 6.4 percent at NT$59 at 10:30 a.m.

Sell-Off

``We are selling across the board,'' said Laurence Tsai, head of portfolio management at ABN Amro Asset Management Taiwan Ltd. ``The election outcome was completely different from what we expected, and it's disputed. We can't predict how events will unfold from now.''

Chunghwa Telecom Co., the island's biggest phone company,, was down 6.8 percent at NT$55. Cathay Financial Holding Co., Taiwan's biggest financial company, lost 6.5 percent to NT$57.50, after Goldman Sachs Group Inc. downgraded Taiwan banks, saying the election dispute may lead to ``political instability and government paralysis.''

Finance Minister Lin said yesterday the government has NT$100 billion at hand to head off a possible plunge when markets open for the first time since Saturday's disputed election and a shooting attack on the president Friday. He said the government may activate the National Stabilization Fund to buy shares if trading becomes ``irrational.''

Rally Evaporates

The TWSE's 18 percent gain this years was whittled to 8 percent this morning. The earlier rally came in part on that Nationalist leader Lien Chan, 67, would win the election and allow Taiwan Semiconductor and other chipmakers to build plants in China for the first time.

The government moved to stabilize markets four years ago when Chen's surprise election victory ended five decades of Nationalist rule. The TWSE Index fell 2.6 percent the Monday after the 2000 presidential election, before the stabilization fund began buying shares and engineering a three-day, 11.7 percent rally.

`The situation could hurt investor confidence in Taiwan,'' Premier Yu Shyi-kun said of Saturday's poll. ``It is not worth it to damage Taiwan's image over this election.'' Overseas investment in Taiwan in 2003 rose 9.3 percent to $3.6 billion.

Protesters who have been blocked the boulevard in front of the Presidential Office in Taipei for two days thinned overnight but are regrouping. Government spokesman Lin Chia-lung late last night rejected the Nationalists' call for a recount and for an independent medical probe of the president's gunshot injury.

Suspicions

Lien said the Friday's shooting incident, where Chen and Vice President Annette Lu, 59, were grazed by bullets during a campaign motorcade in the southern city of Tainan, was ``suspicious'' and had affected the outcome of the election. Lu denied the shooting was a stunt for sympathy votes.

``The shooting was a major factor that caused the election result,'' said Albert King, chief investment officer of Prophet Capital Inc., a Taipei hedge fund. ``My information prior to the shooting showed Lien would win by a 5 to 10 percent margin. When the stock market opens and if the protest continues, the market will fall sharply.''

Lien aides are also alleging vote fraud. The election committee said Chen had 6.47 million votes to Lien's 6.44 million, with a third of a million ballots invalidated.

To contact the reporter on this story: George Hsu in Taipei at georgehsu@bloomberg.net

Last Updated: March 21, 2004 21:33 EST