TAIPEI: Taiwan's central bank urged lenders to reduce their bets against the US dollar after the island's currency reached a three-month high, according to traders at foreign banks.

An official at the central bank of Taiwan called and advised against taking too many US dollar short positions, said the two traders, who asked not to be identified to safeguard their relationship with the monetary authority.

Surging overseas investment in local equities has helped drive Taiwan's currency 4.2 percent higher versus the greenback in the past six months, eroding the competitiveness of manufacturers. The island's export orders, an indicator of actual shipments over the next one to three months, fell for an 11th month in August, dropping 12 percent from a year earlier, the "Ministry of Economic Affairs" said late Wednesday. Economists surveyed by Bloomberg News forecast a 7.25 percent decline.

"It's become very normal for the central bank to show its concern to banks after the Taiwan dollar appreciates for a while," said Tigr Cheng, a strategist at Polaris Securities Co in Taipei. "The central bank will probably keep the Taiwan dollar moving within a small range."

Taiwan's dollar weakened 0.2 percent to NT$32.418 against its US counterpart as of 12 pm local time, according to Taipei Forex Inc It touched NT$32.315 yesterday, the highest level since June 2. A short position is taken when an investor borrows and sells an asset in anticipation of making a profit by buying it back after its price has fallen.

Calls to the office of Spencer Lin, the foreign-exchange chief of the central bank, weren't answered. Deputy Governor George Chou wasn't available for comments, his assistant said.

The Taiwan dollar will remain stable and won't have any adverse impact on exports, the Economic News Daily reported September 16, citing central bank Governor Perng Fai-nan. Overseas shipments are equivalent to about two-thirds of Taiwan's gross domestic product.

The central bank has a flexible currency policy and will "maintain order" in the market if irregular factors cause excessive volatility, it said in an e-mailed statement September 17.

The TAIEX stock index has climbed 7.3 percent this month after overseas investors bought $3.9 billion more local shares than they sold. Net purchases for the year total $11.2 billion.

Bloomberg News

(HK Edition 09/25/2009 page2)