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Asian Currencies Have Biggest Weekly Gain in Almost Two Months

May 29 (Bloomberg) -- Asian currencies had their biggest weekly gain in almost two months as reports showed regional economies are improving and concern faded that Europe’s debt crisis will worsen.

The South Korean won and the Philippine peso were the biggest gainers yesterday after China affirmed its commitment to investing in Europe. The Philippine economy grew at the fastest pace in three years in the first quarter and South Korean manufacturers’ confidence held near a seven-year high.

“Markets are thinking they may have overpriced risks related to Europe,” said Sebastien Barbe, head of emerging-market research for Credit Agricole CIB in Hong Kong. The idea that the European crisis could derail the global recovery eased and “if this is the case, then there’s no reason to sell stocks and currencies in Asia.”

The peso gained 0.6 percent in the past week to 46.192 per dollar in Manila, according to Tullett Prebon Plc. The Taiwan dollar climbed 0.2 percent to NT$31.175, according to Taipei Forex Inc. The won rose 2.4 percent to 1,194.80 yesterday, leaving it little changed for the week, based on Seoul Money Brokerages Services prices. Markets in Indonesia, Malaysia, Singapore and Thailand were shut for a holiday yesterday.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, rose 0.5 percent in the week, its most since the five days ended April 9. The MSCI Asia Pacific Index of shares rose for a third day after China’s State Administration for Foreign Exchange denied as “groundless” a report that it’s reviewing foreign-exchange holdings of euro assets.

Euro Holdings

Volatility in the euro shouldn’t have a “significant impact” on China’s strategy of diversifying its foreign-currency reserves, Yu Yongding, a former adviser to the central bank, said in a telephone interview yesterday. “We believe the euro-zone can get over the crisis and maintain the euro’s stability.”

The won rebounded, after slumping to a 10-month low earlier this week amid mounting tension with North Korea over the sinking of one of the South’s warships.

The government will take action to combat “herd behavior” in the currency market, Deputy Finance Minister Kang Ho-In said yesterday. Kang added North Korean tensions will have a limited impact on South Korea’s economy if no additional outbreaks occur and that the country’s credit rating won’t be affected.

Growth Signs

A South Korean index measuring manufacturers’ expectations for June fell to 104 from 107 in May, the Bank of Korea said yesterday. The May reading was the highest since the fourth quarter of 2002. An index measuring the outlook for exports climbed to 118 from 116 a month ago.

Growth in Asian economies outpaced the rest of world in the first quarter, prompting central banks in the region to begin raising interest rates as inflation returns.

Philippine economic growth of 7.3 percent, reported May 27, beat the 4.4 percent median estimate of economists in a Bloomberg survey. The government may raise its 2010 growth forecast from the current 2.6 percent-to-3.6 percent range, Economic Planning Secretary Augusto Santos said.

The growth rate “reinforces the positive sentiment on the peso,” said Jojo Salvan, assistant vice president for treasury at Bank of the Philippine Islands in Manila. Investors are “optimistic in terms of growth. Flows are coming into the country continuously.”

Rate Outlook

The Indian rupee climbed 1.2 percent in the week to 46.3550 per dollar. India’s economic growth accelerated to 8.6 percent, according to the median estimate of economists before a May 31 report. That would be the fastest pace since the fourth quarter of 2007.

“India is perceived as less risky given the robust growth outlook and that may spur foreign fund inflows,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. “Global cues are also turning positive for the rupee.”

Central banks in the Philippines and Indonesia will hold policy meetings in the coming week. Rate hikes “will happen earlier in Asia than in the U.S. or Europe,” Credit Agricole’s Barbe said.

Elsewhere, the Indonesian rupiah strengthened 0.7 percent in the week to 9,215 per dollar, the Malaysian ringgit climbed 0.9 percent to 3.2865 and the Thai baht fell 0.3 percent to 32.54.

To contact the reporter for this story: Clarissa Batino in Manila at cbatino@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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