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Rupiah Drops to Two-Week Low After Foreign Funds Sell Stocks

Indonesia’s rupiah dropped to a two-week low on speculation overseas investors will buy less of the nation’s assets as they retreat from emerging markets amid concern Europe’s debt crisis is worsening.

The currency fell for a second day after foreign funds sold $108 million more local equities than they bought in the first two days of this week, exchange data show. The Federal Reserve damped speculation it will unveil more stimulus to support the U.S. economy. Government bonds declined.

“The market is still watching what’s going on in Europe and any selling may be short term in nature as the overall position remains positive,” said Wiling Bolung, head of treasury at ANZ Panin Bank in Jakarta. “The central bank will step in if needed and this depends on the currency volatility.”

The rupiah dropped 0.4 percent to 9,110 per dollar as of 3:42 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It reached 9,180 earlier, the weakest level since Nov. 30.

U.S. policy makers said yesterday the economy is maintaining its expansion even as the world economy slows, while refraining from taking new actions to lower borrowing costs, according to the Federal Open Market Committee.

Bank Indonesia expects the currency to trade between 8,900 and 9,000 next year, Deputy Governor Hartadi Sarwono told reporters in Jakarta this week. The monetary authority plans to boost “intervention” to support the rupiah, Governor Darmin Nasution said on Nov. 30 after the currency touched a 17-month low of 9,240 a day earlier.

Yields Rise

The yield on the 8.25 percent note due July 2021 increased two basis points, or 0.02 percentage point, to 6.24 percent, according to midday prices from the Inter-Dealer Market Association. The rate reached 6.06 percent on Dec. 6, the lowest since the securities were sold in July last year.

Indonesia is one of the Asian countries most at risk from a pullback in global risk appetite should the funding conditions in Europe worsen because foreigners own a large amount of local bonds, Michael Buchanan, Goldman Sachs Group Inc.’s chief Asia Pacific economist in Hong Kong, said in a Bloomberg Television interview yesterday.

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