Ringgit erases loss as yuan rebound outweighs oil drop

[KUALA LUMPUR] Malaysia's ringgiterased losses in late trading on Monday as a rebounding yuan damped concern a currency war will heat up in the region.

The South-east Asian currency weakened earlier as data showed Malaysia's factory outputrose 1.8 per cent in November - the least in 16 months - and Moody's Investors Service cut the nation's credit-rating outlook to stable from positive. The oil price's slide to the lowest level since 2003 also dimmed prospects for the country, Asia's only major net exporter of crude.

"The ringgit has been mirroring mostly the Chinese yuan's move in recent sessions while retaining a slight risk-off bias," said Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia.

The currency closed 0.1 per cent stronger at 4.3802 a dollar, after falling as much as 0.8 per cent, according to prices from local banks compiled by Bloomberg. The FTSE Bursa Malaysia KLCI Index of shares dropped 1.2 per cent, after losing 2.1 per cent last week.

Developing-nation currencies have fallen across Asia so far this year as China's central bank lowered its reference rate for the yuan, fueling concern the region's biggest economy will favor depreciation to give its exports a boost. The Bloomberg- JPMorgan Asia Dollar Index has lost 1.1 per cent while the MSCI Asia Pacific Index of shares is down 7 per cent.

"No one really believes the China situation has been resolved," said Michael Every, Hong Kong-based head of financial-markets research at Rabobank Group in Hong Kong. He predicts regional stocks and currencies will resume losses this week.

Ten-year Malaysian government bonds fell, pushing the yield up two basis points to 4.23 pe rcent, according to prices from Bursa Malaysia.

BLOOMBERG