Emerging Asia FX-Ringgit at 8-year high, all eyes on China

SINGAPORE, Apr 12 (Reuters) The Malaysian ringgit set an eight-year high on Wednesday while the Thai baht and South Korean won were near multi-year highs as traders speculated that China would allow further gains in its currency.

The ringgit edged to 3.6645 per dollar, its highest level since Malaysia dropped the currency's dollar peg last July and allowed a faster pace of appreciation. The currency has gained 3.7 percent since the July move.

The baht was quoted as high as 37.93 per dollar, close to Tuesday's six-year high of 37.90. The South Korean won was quoted as high as 952.6 per dollar, close to an 8-1/2-year high of 948.50 hit on Friday.

Analysts said financial markets were looking at whether China would let the yuan rise further ahead of President Hu Jintao's visit to the United States next week to counter criticism from U.S.

politicians who say China is artificially keeping its currency weak to gain advantage in global trade.

A stronger yuan is expected to lift other tightly controlled regional currencies, such as the Malaysian ringgit, whose values are increasingly being shepherded by central banks with an eye on what the yuan is doing.

''Asia will be watching developments in China very closely in the next few weeks,'' said Jimmy Koh, head of treasury research at Singapore's United Overseas Bank.

''Markets are not sure whether China is only letting the renminbi rise for one month during Hu Jintao's visit or whether they'll let it rise further.'' He said markets were pricing in a 3-5 percent rise in the yuan, or renminbi, this year but that a lot depended on China's economy, which was being driven by capital investment and overseas demand rather than domestic consumption.

''They have a lot of structural problems,'' Koh said.

Zhang Hanya, an economist at one of China's top economic planning bodies, said in a report published on Wednesday that China faced the spectre of deflation within the next two years if overcapacity continued to swamp domestic demand.

The yuan has gained 0.77 percent this year and 1.2 percent since the central revalued the currency in July to 8.11 per dollar from 8.28, although on Wednesday it weakened to 8.0105 per dollar from Tuesday's close of 8.0050.

The Singapore dollar, another Asian currency seen as a proxy trade for any appreciation in the yuan, rose as high as 1.6088 per dollar, recovering from a drop on Tuesday.

Traders had been caught off guard on Tuesday by the Monetary Authority of Singapore's decision to stick to its two-year-old policy of allowing a gradual, modest rise in the trade-weighted Singapore dollar.

It also left unchanged the undisclosed midpoint of its preferred trading band for the currency and the width of the band. It conducts monetary policy through the currency and analysts had expected it to tighten, allowing more appreciation.

But many analysts said the Singapore dollar's reversal would be temporary because the central bank might have to tighten policy further this year, and Swiss bank UBS said in a report that this might even happen before its next meeting in October because of strength in the economy.

CURRENCIES VS U.S. DOLLAR Change on the day at 0252 GMT Currency Latest bid Previous day Pct Move Japan yen 118.03 118.47 +0.37 Sing dlr 1.6102 1.6116 +0.09 Taiwan dlr 32.431 32.446 +0.05 Korean won 954.50 954.70 +0.02 Baht 37.96 37.99 +0.09 Peso 51.22 51.21 -0.02 Rupiah 8997.00 8986.00 -0.12 Ringgit 3.6660 3.6680 +0.05 Yuan 8.0083 8.0070 -0.02 Change so far in 2006 Currency Latest bid End prev year Pct Move Japan yen 118.03 117.96 -0.06 Sing dlr 1.6102 1.6625 +3.25 Taiwan dlr 32.431 32.850 +1.29 Korean won 954.50 1011.60 +5.98 Baht 37.96 41.11 +8.31 Peso 51.22 53.09 +3.65 Rupiah 8997.00 9835.00 +9.31 Rupee 44.82 45.04 +0.50 Ringgit 3.6660 3.7790 +3.08 Yuan 8.0083 8.0702 +0.77 ((Editing by Alan Raybould; rajat.bhattacharyazreuters.com; Reuters Messaging: rajat.bhattacharya.reuters.comzreuters.net; +65 6870 3841)) For the new Reuters scrolling global forex service please click REUTERS PV ND1228