Emerging FX-Peso and rupiah retreat on risk aversion

SINGAPORE, July 11 (Reuters) The Philippine peso and Indonesian rupiah pulled back in tandem on Wednesday as investors reduced their exposure to high-yielding, riskier assets amid growing concerns about the U.S. subprime mortgage market.

The peso fell as far as 46.18 per dollar, down 0.5 percent from Tuesday's close and pulling back from a five-week high hit in the previous session.

''We are seeing some risk aversion with the yen trading on the strong side. Currencies in Southeast Asia have been trading on the stronger side last couple of days. It's probably a healthy correction,'' said a dealer in Manila.

''We don't think it's a reversal of fortune. It might be an opportunity to get into better levels. But we are just watching this. Better to keep light with the uncertainties,'' he said.

The rupiah fell a quarter of a percent to 9,025 per dollar, retreating from a two-week high hit in the previous session.

The dollar plumbed a record low against the euro and hit a one-month low versus the Japanese yen , a day after credit rating agency Standard&Poor's said that it might downgrade .1 billion in subprime-related debt.

Asian stock markets slipped on Wednesday amid worries about the subprime loans, with MSCI's measure of Asia Pacific stocks excluding Japan <.msciapj> falling almost 0.7 percent.

The development has fuelled risk aversion and prompted some investors to unwind their carry trade positions, traders said.

The peso and rupiah are vulnerable to the unwinding of carry trade, in which investors borrow low-yielding currencies, typically the yen, to fund their investments in assets that bring higher returns.

The high-yielders fell sharply in February after a sell-off in global stocks was triggered by a slump in Chinese shares.

Reuters RSA GC1025