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Taiwan dollar inches up after interest rate cut

Reuters - Friday, October 10

TAIPEI, July 7 - The Taiwan dollar shook off a five-day losing streak to end slightly stronger on Thursday as investors squared long positions in the U.S. dollar before a long weekend, with the rate cut having limited impact on the market.

The Taiwan dollar <TWD=TP> closed at T$32.437 to the U.S. dollar, marginally stronger than the previous close of T$32.448, which was a nine-month closing low.

Volume on the main Taipei Forex Inc exchange was active at $1.187 billion, but lower than $1.318 billion a day earlier. Markets will be closed on Friday for Taiwan's National Day.

"Some investors are taking profits after going long on the U.S. dollar recently," said a dealer in Taipei.

In the non-deliverable forwards market, with six-month NDFs widening to -0.380/-0.340 from -0.300/-0.230 the previous session, meaning the Taiwan dollar will likely strengthen by a larger degree within half a year.

However, the Taiwan dollar's gain was limited as the local stock market fell to a more than five-year closing low.

Taiwan stocks <.TWII> fell 1.45 percent on Thursday despite a central bank interest rate cut, as concerns over a weak global economy dragged financial shares lower.

Taiwan's central bank on Thursday cut interest rates by 25 basis points after a worldwide coordinated wave of central bank rate cuts aimed at stemming the global financial crisis.

Taiwan's cut, which takes immediate effect, brings the bank's benchmark discount rate to 3.25 percent and is aimed at supporting economic growth.

After the rate cut announcement, Central Bank Governor Perng Fai-nan said current levels of the Taiwan dollar would help maintain the island's exports competitiveness.

The central bank was both buying and selling the Taiwan dollar during trade, said another dealer in Taipei.

The Taiwan dollar has fallen 8 percent on fund outflows since hitting a 10-1/2-year high in late March, as improving cross-Strait relations under President Ma Ying-jeou were expected to help the island's economy.

On the smaller Cosmos exchange <COSMOS1>, the Taiwan dollar rose to T$32.440 to the U.S. dollar from the previous close of T$32.465.

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