TW market 1119 test

16:40 19Nov2008 RTRS-Taiwan dollar at 3-wk low due to fund outflows

(Updates to close)
TAIPEI, Nov 19 (Reuters) - The Taiwan dollar hit a three-week closing low on Wednesday in thin trade, pressured by foreign fund outflows due to a grim economic outlook and after the central bank's comments on interest rates.
The Taiwan dollar ended lower at T$33.265 to the U.S. dollar, its weakest finish since Oct. 29 and compared with Tuesday's close of T$33.234.
The Taiwan dollar traded in a narrow range during the session, with few investors willing to trade near the end of the year. Volume on the main Taipei Forex Inc exchange was paltry at $532 million, sharply lower than $793 million a day earlier.
"Big foreign banks bought the U.S. dollars and foreign investors also increased their stock sales," said a dealer in Taipei.
"Trading has been light in the market because banks have started to close their books."
The Taiwan dollar was also weighed by weakness in domestic stocks <.TWII>, which fell 0.49 percent to a fresh five-year closing low on Wednesday, with construction companies down even after the government said it would boost public spending.
Foreign institutions continued selling local stocks, unloading T$9.4 billion ($283 million) worth of Taiwan shares on Wednesday. They have pulled out about T$509 billion from Taiwan's stock market so far since June.
The Taiwan dollar was also pressured by the South Korean won , which fell for a seventh straight session and hit a three-week low against the U.S. dollar. [ID:nSEO349752]
However, exporters' deals helped cushion losses in the Taiwan dollar, dealers said. Exporters prefer a weaker Taiwan dollar because they can change the U.S. dollar earnings to more of the local currency.
Taiwan's central bank said it would adjust interest rates to an appropriate level to ensure financial stability, according to report seen by Reuters on Tuesday, with some dealers expecting rates to fall further. [ID:nTP298139]
"The central bank might cut the interest rate by 25 basis points, but the Taiwan dollar will still be on a downward trend and test as low as T$34 by the end of the year," said the dealer.
In the non-deliverable forwards market, six-month NDFs narrowed to -0.180/-0.130 from -0.200/-0.140 in the previous session. That meant investors saw the Taiwan dollar strengthening by a smaller degree in half a year.
The Taiwan dollar has fallen about 11 percent since hitting a 10-1/2-year high in late March, mainly due to fund outflows amid the global financial crisis.
On the smaller Cosmos exchange , the Taiwan dollar fell to T$33.258 to the U.S. dollar, from the previous close of T$33.223.
(Reporting by Gina Chang and Lin Miao-jung; Editing by Ken Wills)
((chyenyee.lee@thomsonreuters.com; +886 2 2508-0815; Reuters Messaging: chyenyee.lee.reuters.com@reuters.net))
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Wednesday, 19 November 2008 16:40:33RTRS [nTP351717] {EN}ENDS