TWD 0108

16:32 08Jan2009 RTRS-Taiwan dollar weakens after rate cut, fund outflows

(Adds closing values, details)
TAIPEI, Jan 8 (Reuters) - The Taiwan dollar fell on Thursday after a cut in the island's benchmark discount rate the previous day, as foreign funds pushed their money into higher-yielding currencies but exporter deals provided some support.
The Taiwan dollar fell to as low as T$33.151 in early trade, but later pared some losses to close the day at T$33.115, weaker than Wednesday's close of T$32.980.
Volume on the main Taipei Forex Inc exchange was active at $1.337 billion, higher than the $908 million a day ago.
"The interest rate cut pushed lots of money out of Taiwan dollar holdings, plus we saw a lot of foreign fund outflows as the stock market fell today," said a dealer in Taipei.
Taiwan stocks <.TWII> closed down 5.3 percent on Thursday, its biggest single-day drop in two months, after the island's exports sank at a record pace in December amid savaged demand from China.
Foreign funds pushed more than T$11 billion ($332 million) out of the stock market on Thursday, reversing much of the inflows this year.
Taiwan resorted to the emergency interest rate cut on Wednesday, bringing the benchmark discount rate to 1.50 percent, the lowest level since September 2004. [ID:nTP4588]
The Taiwan dollar also fell together with regional currencies such as the South Korean won , with which it shares a similar export-oriented trade profile.
However, exporters eager to take advantage of the weakening Taiwan dollar helped prevent larger losses in the local currency as they sold their U.S. dollar holdings ahead of the Lunar New Year holiday later this month.
Exporters generally prefer a weaker Taiwan dollar as it allows them to get more of the local currency for every U.S. dollar.
Dealers also said upcoming unemployment data out of the U.S. on Friday could affect the Taiwan dollar the rest of this week, further weighing on the local currency if the figures are shown to be worse than expected.
"How the stock market performs tomorrow and how bad the nonfarm payrolls appear on Friday are really the two biggest issues that can affect the Taiwan dollar right now," another dealer said.
On the smaller Cosmos exchange, the Taiwan dollar closed at T$33.115, weaker than the T$32.971 on Wednesday.
(Reporting by Kelvin Soh; Editing by Ken Wills)
((kelvin.soh@thomsonreuters.com; +886 2 2508-0815; Reuters Messaging:kelvin.soh.reuters.com@reuters.net)) Keywords: MARKETS TAIWAN CURRENCY/

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Thursday, 08 January 2009 16:32:03RTRS [nTP93878] {EN}ENDS