Emerging FX-Peso jumps after rate cut, seen capped by c.bank

SINGAPORE, July 13 (Reuters) The Philippine peso rose on Friday, buoyed by a stock market rally after the central bank slashed interest rates and offset the impact by scrapping a scheme which paid lower interest on high-volume deposits.

The peso rose as far as 45.73 per dollar, up about half of a percent from Thursday's close, but traders said suspected central bank intervention pushed it back towards 45.80.

The Indonesian rupiah which has recently moved largely in tandem with the peso, rose as far as 9,010 per dollar, up about 0.4 percent from late Asia trade on Thursday. Most other Asian currencies made modest gains against the dollar.

''The peso is settling down between 45.75 and 45.80 after strong central bank intervention around the 45.75 level,'' said a trader in Manila.

''The central bank's rate cut yesterday seems to be taken in a positive light,'' he said. ''The cut is positive for the equity market, and with the equity market strong, there is foreign interest and that causes the peso to strengthen,'' he said.

The Philippine shares rose about 1 percent early on Friday.

On Thursday, the stock market was already closed when the central bank surprised investors by slashing the overnight borrowing rate by 150 basis pints to 6.0 percent and the lending rate by 175 basis points to 8.0 percent.

In an accompanying move, the central bank removed a tiered scheme, under which interest rates were reduced by up to 400 basis points on banks' deposits in excess of 10 billion pesos.

Central bank governor Amando Tetangco said the impact from the policy adjustments would be neutral, but market players believed the moves still amounted to some easing.

''While easing is bullish for the government bonds we expect a limited negative impact on the peso as strong economic fundamentals will continue to attract capital inflows to support the currency,'' analysts at ING said in a research note.

Sean Callow, currency strategist at Westpac, said he believed the relaxation was in line with the central bank's cut of its 2007 inflation forecast to 2.6-3.1 percent from 4-5 percent.

''Markets should quickly factor in at least one rate cut in coming months,'' he said in a note.

''While this will of course undermine the peso from a yield spread view, foreign equity investors already attracted to the Philippines' macro story are likely to become even more enthusiastic,'' he said.

REUTERS SW PM1030