Asian currencies recover after yuan-cut rout

Asian currencies gained Thursday, rebounding from the worst two-day rout in almost 20 years after China reassured markets it would not engage in a currency war.

Emerging market currencies including the Indonesian rupiah, Philippine peso and South Korean won rose slightly against the dollar after China Thursday trimmed its yuan reference rate 1.1 percent.

The cut, which was smaller than those in the previous two days, and news the central bank intervened to stablise the yuan on Wednesday reassured dealers Beijing would not allow its currency to slump.

"It s likely the worst is over," Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong, told Bloomberg News.

"PBOC intervention has calmed the market. There is not a sense that the onshore yuan will weaken forever."

In Tokyo afternoon trade the dollar changed hands at 124.39 yen, up from 124.24 yen in New York, where it took a hit on fears Beijing s moves underscored weakness in China s economy and could delay a US interest rate hike.

China s latest devaluation comes after two previous cuts, on Tuesday and Wednesday, sparked concerns that the world s number two economy, long an engine for world growth, is weaker than previously thought.

The move sent Asia-Pacific currencies plummeting, pushing the Malaysian ringgit to 17-year lows, on fears the cut could hurt other regional economies and spark a race to the bottom by central banks in a bid to keep their exports competitive.

On Wednesday, Vietnam doubled the trading band for the dong, allowing the currency to weaken to try to make exports more competitive as China falls. Analysts warned, however, that Asia-Pacific currencies are still at risk after suffering their worst two-day selloff since 1998.

"The talk of China joining a currency war could set out a round of competitive valuation in the region," said Aidan Yao, senior emerging market economist at AXA Investment Managers.

"This, coupled with the anticipated Fed tightening, may trigger massive capital outflows that lead to catastrophic consequences for Asia."

In other trading, the euro exchanged hands at $1.1136 and 138.62 yen against $1.1159 and 138.63 yen in New York. -