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Taiwan Dollar Pares Gain on Suspected Intervention; Bonds Rise

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Oct. 4 (Bloomberg) -- Taiwan’s dollar surrendered the bulk of the day’s gains in late trading as the central bank intervened to curb appreciation that may hurt exports, according to two traders familiar with the monetary authority’s operations.

The island’s currency strengthened beyond NT$31 for the first time since August 2008 on speculation overseas investors will increase holdings of local assets as trade ties with China improve and exports rise. A government report this week may show overseas sales climbed for an 11th month in September and tariff cuts outlined in a trade deal with China, the No. 1 destination for shipments, will be phased in from Jan. 1. The Taiex Index climbed to an eight-month high today.

“Taiwan is among the choices for international funds,” said Henry Lin, a foreign-exchange trader at Taiwan Shin Kong Commercial Bank. “The economy will grow” because of the island’s trade pact with China.

The currency closed 0.2 percent higher at NT$31.250 against its U.S. counterpart, having been 1.1 percent stronger two minutes before the end of the trading session, according to Taipei Forex Inc. It rose as much as 0.8 percent to NT$31.066 on Oct. 1, before surrendering almost all of the gain in late trading on suspected intervention by the central bank.

Policy makers may become “more aggressive” in curbing appreciation as they want the NT$31 level to hold, Lin said. The central bank intervenes in currency markets by arranging purchases or sales of foreign exchange.

‘Flush With Money’

Exports rose 26.6 percent from a year earlier last month, the same pace as in August, according to the median estimate of economists in a Bloomberg News survey before a finance ministry report on Oct. 7.

Foreign funds bought $80 million more Taiwan stocks than they sold today, boosting this year’s net purchases to $3.4 billion, exchange data show.

Taiwan’s benchmark five-year bonds advanced for a third day, pushing the yield to its lowest level since August, on speculation overseas investors were buying the securities to profit as the currency appreciates.

“The market is flush with money,” said Tommy Huang, a bond trader at Taiwan International Securities Corp. in Taipei. “The gains in five-year bonds are probably related to foreign investors parking funds in short-term debt as the Taiwan dollar strengthens.”

The yield on the 2 percent note maturing in July 2015 declined 4.4 basis points, or 0.044 percentage point, to 0.824 percent, according to Gretai Securities Market, the island’s biggest exchange for bonds. Its price climbed 0.2088, or NT$208.8 per NT$100,000 face amount, to 105.4956.

To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net; Yu-Huay Sun in Taipei at ysun7@bloomberg.net.

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

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