Feb. 27 (Bloomberg) -- The Philippine peso, stocks and bonds may rise on optimism President Gloria Arroyo will proceed with plans to improve the nation's finances, after avoiding an escalation in protests seeking to topple her government.

``If your view is that the fundamentals are improving, then this short-term political instability is a good buying opportunity,'' said Winson Fong, who helps manage $2 billion at SG Asset Management Ltd. in Singapore. .''

The peso had its biggest drop since July 2002 on Friday after Arroyo declared a state of emergency to stop a plot to set up an ``extra-constitutional'' regime. Today, the peso rose 0.1 percent to 52.14 to the U.S. dollar at 10:22 a.m. in Manila. The benchmark stock index, which fell 1 percent on Friday, fell 0.2 percent to 2065.70.

Philippine assets have gained in the past year and this month Standard & Poor's and Fitch raised their outlooks on the country's junk debt ratings to stable from negative. Confidence in the finances of the nation, Asia's biggest seller of overseas debt, improved after Arroyo pushed through value-added tax changes she says will end budget deficits by 2008.

Arroyo, 58, has foiled several civilian and military attempts to topple her government since she came to power in a 2001 revolt. Since Friday, authorities arrested a general, a congressman and a former general. A six-hour demonstration at Marine Corps headquarters yesterday protesting the replacement of their commander ended before midnight.

``Still Comfortable''

Fitch, which rates Philippine debt BB, two levels below investment grade, today said what happened on and since Friday may not prompt it to change its outlook.

``We are still comfortable,'' James McCormack, Fitch's head of Asian sovereign ratings said in a phone interview today. ``In a BB range, we do have some tolerance for political noise.''

The market decline on Friday ``should be temporary unless Arroyo declares martial law,'' said Edwin Chungunco, who helps manage $2 billion at Western Asset Management in Singapore. ``The economic fundamentals didn't change. The fiscal balance is improving.''

In 1972, then-President Ferdinand Marcos imposed martial law, jailing hundreds of members of opposition groups, and took over most newspapers and broadcasters, some until he was ousted in 1986. He also shut Congress, replacing it with a parliament he could over-rule.

Economic Growth

On Saturday, Presidential spokesman Ignacio Bunye said the state of emergency may be over ``in no time.'' In 2001, Arroyo declared a four-day state of rebellion, arresting a senator and three other people she said plotted to overthrow her. She didn't shut Congress then and has announced no plans to do so now.

This month's tax changes will help accelerate economic growth to between 5.7 percent and 6.3 percent this year from 5.1 percent last year as the added revenue boosts investor confidence and allows the government to increase public works spending. That may help stocks rally, said SG Asset's Fong.

``The economy is picking up and corporate profitability has recovered,'' Fong said.

Net foreign investment in stocks and bonds was only $2.1 billion last year, according to the central bank. That's helped capped the value of companies in the Philippine Stock Exchange at $41 billion, the third-smallest among 15 Asia-Pacific exchanges tracked by Bloomberg.

Fluid Situation

The Philippines has had a series of revolts and coup attempts since Marcos was ousted, including the 2001 revolt that put Arroyo in power. In 2003, a group of military officers commanding about 300 soldiers demanded Arroyo and key civilian and military officials step down. They gave up within a day.

``The situation remains fluid,'' Chungunco said. He said he'd sell some Philippine dollar-denominated bonds if the situation ``deteriorates.''

Philippine dollar-denominated bonds returned 19.8 percent last year, more than twice as much as Indonesian and Taiwanese debt. The peso gained for the first year in seven, rising 6 percent against the U.S. dollar, the best performer of 15 Asia- Pacific currencies tracked by Bloomberg, as remittances from Filipinos abroad rose 25 percent to $10.7 billion pesos.

Police, citing the state of emergency, broke up several anti-Arroyo protests on Friday that were scheduled to coincide with the 20th anniversary of the ouster of Marcos.

``People may be getting sick of all these changes in leadership,'' said Dilip Parameswaran, Hong Kong-based head of Asian credit research at Calyon, the securities arm of Credit Agricole SA. This may become a buying opportunity, he said, because ``President Arroyo seems in control. The military is still with her.''

To contact the reporter for this story: Francisco Alcuaz Jr. in Manila falcuaz@bloomberg.net

Last Updated: February 26, 2006 21:26 EST