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Taiwan Dollar Falls to Three-Month Low, Bonds Rise on Europe

May 16 (Bloomberg) -- Taiwan’s dollar dropped to the lowest level in more than three months and government bonds rose as concern Europe’s debt crisis is worsening deterred risk-taking.

The local currency fell for a fourth day as global funds sold $398 million more of the island’s stocks than they bought, taking net selling this month to $2.4 billion, according to exchange data. Greece will hold fresh elections after President Karolos Papoulias failed to form a coalition following an inconclusive May 6 vote, threatening pledged spending cuts required to secure 240 billion euros ($306 billion) in bailouts.

“Europe should continue to provide pessimism to the market in the next month or so,” said Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co. “We’re in an environment that’s favorable for bonds.”

Taiwan’s dollar declined 0.4 percent to NT$29.635 against its U.S. counterpart, according to Taipei Forex Inc. It touched NT$29.637, the weakest level since Feb. 2. One-month implied volatility, a measure of exchange-rate swings traders use to price options, rose 72 basis points to 5.88 percent.

Taiwan will report on May 21 that export orders increased 0.02 percent in April from a year earlier after a 1.58 percent drop in the previous month, according to the median estimate of economists in a Bloomberg survey.

The yield on the 1 percent notes due January 2017 dropped one basis point, or 0.01 percentage point, to 0.961 percent, according to Gretai Securities Market. It touched 0.950 percent yesterday, the lowest level for benchmark five-year securities since March 1.

The overnight interbank lending rate was little changed at 0.510 percent, according to a weighted average compiled by the Taiwan Interbank Money Center. It closed at 0.514 percent May 9 through May 11, the highest level since 2008.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

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

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