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Philippine Peso Halts Two-Day Rally on Europe Woes; Bonds Gain

The Philippine peso fell, snapping a two-day rally, on speculation Europe’s debt crisis will deepen and damp demand for emerging-market assets. Bonds advanced.

The currency was poised for its biggest monthly loss since September after Spain backtracked on a plan to bail out its third-biggest lender. The government will report tomorrow that gross domestic product increased 4.3 percent in the first quarter from a year earlier, the most in 12 months, according to the median estimate of economists surveyed by Bloomberg.

“There’s a lot of uncertainty in the global economy and investors are very cautious,” said Ricky Cebrero, head of treasury at Philippine National Bank in Manila. “Domestic economic fundamentals are intact and will support the peso.”

The peso slid 0.6 percent to 43.49 per dollar at the close in Manila, data from Tullett Prebon Plc showed. The currency has lost 2.9 percent in May. The peso will strengthen to 42.50 by the end of the year, Cebrero forecast. One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 7.60 percent.

The Philippine currency posted its biggest gain in almost six months yesterday as Moody’s Investors Service raised the outlook on the nation’s Ba2 rated foreign-currency debt rating to positive from stable. The peso remains broadly stable and the nation has ample dollar liquidity, central bank Deputy Governor Diwa Guinigundo said yesterday.

The yield on the 15 percent bond due March 2022 fell three basis points, or 0.03 percentage point, to 5.99 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp.

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