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Asian currencies drop this week amid stock outflows, MERS risk

[HONG KONG] Asian currencies dropped, led by Malaysia's ringgit, as funds pulled money from emerging markets on signs the US is moving closer to raising interest rates.

Overseas investors sold a net US$1.7 billion of stocks in Taiwan, South Korea and India since June 5, exchange data show. The Federal Reserve reviews borrowing costs next week as data suggests the world's largest economy is emerging from a first- quarter slowdown. The Bank of Korea said the spread of Middle East respiratory syndrome posed a threat to consumption as it cut its benchmark rate to a record low on Thursday.

"Expectations for a US rate hike are weighing on the region and we're seeing outflows," said Stella Lee, president of Success Wealth Management Ltd in Hong Kong.

"The MERS outbreak could also hurt economic growth in Asia."

The ringgit fell 1.1 per cent since June 5 as of 4:08 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. India's rupee dropped 0.5 per cent and the Philippine peso declined 0.6 per cent through Thursday, with local markets closed today for a public holiday.

The ringgit weakened on Friday, reversing an earlier advance, after a report in a German newspaper that government officials are preparing for a Greek default damped demand for emerging-market assets.

"The ringgit turned lower because of risk aversion on concern over a Greece default," said Sim Moh Siong, a foreign- exchange strategist at Bank of Singapore Ltd in the city.

The Philippine currency closed at the weakest level since March 2014 on Thursday as data from Bangko Sentral ng Pilipinas showed there were $569 million of net portfolio outflows last month, compared with US$31 million in April. The peso is market- determined and the monetary authority is comfortable with that, Deputy Governor Diwa Guinigundo said in an interview in Manila on Wednesday.

The won fell 0.3 per cent from June 5, after dropping 2.3 per cent over the previous three weeks. The MERS outbreak has killed 11 South Koreans and put more than 3,000 in quarantine in more than three weeks. MERS is now the biggest variable to Korea's economic outlook, BOK Governor Lee Ju Yeol said Thursday, as he flagged the chance of a reduction in the country's 2015 economic growth forecast of 3.1 per cent.

Thailand's baht was the only major gainer in Asia this week, climbing 0.5 per cent, as the Bank of Thailand held its benchmark interest rate on Wednesday after two consecutive cuts. Finance Minister Sommai Phasee said there is no need for further reductions as they will hurt savers.

Elsewhere in Asia, Indonesia's rupiah fell 0.3 per cent and China's yuan declined 0.07 per cent. Taiwan's dollar declined 0.5 per cent, while and Vietnam's dong advanced 0.1 per cent.

BLOOMBERG