Emerging Asia FX-Rupiah leads recovery on lure of yields

SINGAPORE, Mar 10 (Reuters) The Indonesian rupiah led a recovery in Asian currencies on Friday as investors found their appetite for risk again, taking the view that the region's high-yielding bonds would remain a lucrative buy.

Analysts said that although the Bank of Japan ended five years of ultra-loose monetary policy on Thursday, Japanese interest rates would remain near zero for a while, enabling investors to keep borrowing yen to buy high-yielding currencies such as the rupiah.

''There's a view that the yen carry trade will continue in the short term,'' said Thomas Lam, treasury economist at United Overseas Bank in Singapore. ''The high-yielding emerging markets could be benefiting from this.'' But Lam said he thought the risk premium in U.S. financial markets had gone up recently, with investors switching to defensive, all-weather stocks.

That could imply investors' risk appetite was on the decline and that they could be shifting away from the riskier emerging market countries with high current account deficits to ones in Asia that traditionally have surpluses, Lam said.

The Indonesian rupiah rose as much as 1.3 percent to 9,215 per dollar, recovering from a five-week low after three days of decline, helped by a return of investors to the country's bonds, some of the highest yielders in Asia.

The Thai baht rose as much as half a percent to 38.985 per dollar while the Philippine peso rose as much as a quarter of a percent to 51.26 per dollar.

Asian currencies had suffered earlier this week along with those in global emerging markets as rising interest rates in the United States and Europe plus the end of Japan's ultra-loose monetary policy indicated the end of cheap money and lowered investors' appetite for risky, high-yielding currencies.

FOREIGN INVESTORS RETURN The South Korean won and Singapore dollar , both largely dependent on trade flows, gained more than a quarter of a percent.

In South Korea foreign investors returned to the local stock market on Friday after being net sellers of local stocks for the previous five sessions. That helped the won recover from a seven-week low of 979.7 per dollar.

The Taiwan dollar was steady around the 32.51 level, supported by the return of foreign investors following three days of net sales of local stocks.

In Indonesia, the rupiah started recovering from late Asian trading on Thursday as dealers covered short positions after buying by state banks, possibly for the central bank. That had lifted the rupiah from a five-week low.

''Some banks were caught long (of dollars) yesterday,'' one dealer said. Those banks were unwinding their trades now, he said.

Indonesian central bank Deputy Governor Aslim Tadjuddin said the rupiah has room to be stronger than 9,000 per dollar.

On Thursday he said recent falls in the currency were a normal thing in the currency markets, where speculative short-term funds can easily come and go. Some of those funds returned to Indonesian government bonds on Friday, driving down yields.

The yield on the three-year benchmark Indonesian government bond fell to 11.893 percent from 12.4 percent the day before.

The yield had surged earlier this week from a seven-month low of 11.603 percent on March 3.

REUTERS SY KN1604