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Rupiah Falls After Fed Refrains From New Measures; Bonds Advance

Indonesia’s rupiah fell after the Federal Reserve said it will expand its existing stimulus operations instead of embarking on new measures that may have spurred demand for emerging-market assets. Bonds advanced.

The Fed will increase its Operation Twist program of replacing short-term bonds with longer-term debt, while holding off from broader monetary easing. German Chancellor Angela Merkel said she expects a request from Spain in the coming days for as much as 100 billion euros ($127 billion) in aid for its banks. Foreign funds have cut holdings of Indonesian stocks by $183 million this month through yesterday, exchange data show.

“The rupiah is under pressure due to factors from the U.S. and Spain,” said Klara Pramesti, a research analyst in the treasury division at PT Bank Negara Indonesia in Jakarta. “The market is disappointed as they expected a new round of quantitative easing, which would have been positive for riskier assets.”

The rupiah weakened 0.4 percent to 9,481 per dollar as of 9:06 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It has lost 3.3 percent this quarter, the third-worst performance among Asia’s 10 most-traded currencies. One-month implied volatility, which measures exchange-rate swings used to price options, held at 11.50 percent.

The Fed embarked on two rounds of a tactic called quantitative easing by buying $2.3 trillion of bonds from December 2008 to June 2011 to boost the U.S. economy.

The yield on the government’s benchmark 10-year bonds dropped six basis points, or 0.06 percentage point, to 6.23 percent, the lowest level since May 10, data compiled by Bloomberg show.

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