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Rupiah Drops to Lowest Level in Three Weeks on Europe Debt Woes

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June 16 (Bloomberg) -- Indonesia’s rupiah fell to a three-week low as the deepening debt crisis in Greece heightened risk aversion, damping demand for emerging-market assets. Government bonds dropped.

The currency declined the most in five weeks as the MSCI Asia-Pacific Index of regional shares slumped 2.1 percent. Greek Prime Minister George Papandreou will reshuffle his Cabinet and hold a confidence vote today after failing to gather support from the opposition for austerity measures.

“There’s some risk aversion because of uncertainties about the Europe debt crisis,” said Eric Alexander Sugandi, a Jakarta-based economist at Standard Chartered Plc. “I expect the weakness in the rupiah to be temporary because the country’s fundamentals are still strong.”

The rupiah declined 0.7 percent to 8,606 per dollar as of 4:26 p.m. in Jakarta, according to data compiled by Bloomberg. That’s the weakest level since May 26.

The currency has gained 4.3 percent this year, the second-best performance among Asia’s 10 most-traded currencies after the Taiwan dollar, as global funds boosted holdings of government bonds by 21 percent to 236.56 trillion rupiah ($27.5 billion) through June 14, according to data from the debt management office.

The yield on the 8.25 percent note due July 2021 climbed 12 basis points, or 0.12 percentage point, to 7.51 percent, according to prices from the Inter-Dealer Market Association.

To contact the reporter on this story: Suryani Omar in Jakarta at somar6@bloomberg.net;

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

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