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Rupiah Hits Three-Week High on Europe Progress; Bonds Advance

July 2 (Bloomberg) -- Indonesia’s rupiah rose to near a three-week high and government bonds rallied after members of the euro area agreed on measures to tackle the debt crisis, supporting riskier assets.

European leaders agreed to relax conditions on bailout funds for Spanish banks and possible aid for Italy at a two-day summit that concluded June 29 in Brussels. Indonesia’s trade deficit shrank to $486 million in May from a revised April shortfall of $765 million, according to the statistics bureau today. A separate report showed consumer prices gained 4.53 percent in June from a year earlier, compared with a 4.45 percent increase in May.

“The very positive sentiment from Friday pushed regional markets higher and in turn led the rupiah higher,” said Artanavaro Gasali, the Jakarta-based head of global markets at PT Bank ICBC Indonesia. “The rupiah will have some support as foreign investors reenter Indonesia’s capital market.”

The rupiah strengthened 0.5 percent to 9,383 per dollar as of 4:44 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency touched 9,360, the strongest level since June 12. One-month implied volatility, which measures exchange-rate swings used to price options, held at 8.5 percent today.

“Inflation is not going to be a problem for the next few quarters” as the threat of a global economic slowdown damps the price of oil and Bank Indonesia takes steps to restrict credit growth, analysts at DBS Group Holdings Ltd. led by David Carbon wrote in a research report today.

The yield on the government’s 7 percent bonds due May 2022 fell 10 basis points, or 0.10 percentage point, to 6.09 percent, the lowest since May 7, according to closing prices from the Inter Dealer Market Association.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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