MANILA, December 11, 2004 (STAR) By Des Ferriols - The peso and local stocks tumbled yesterday on concerns over a possible credit ratings downgrade for the country.

The benchmark 30-company Philippine Stock Exchange Index plunged 40.21 points, or 2.2 percent, at 1,753.47, its lowest close since Nov. 12 when it finished at 1,742.81.

At the Philippine Dealing System (PDS), the peso slid towards a near record low of 56.45 to the dollar during midday trading. At the close of trading, the peso gave up 12.50 centavos to settle at 56.335 from Thursday’s close of 56.210 to the dollar. The peso hit a high of 56.250 before hitting a low of 56.40 to the dollar with total transactions reaching $291.30 million.

Traders said investors were spooked by a Philippine Star report Thursday that cited unnamed sources as saying Moody’s Investors Service is considering a two-notch credit rating downgrade for the Philippines in February unless the government is able to deliver three key fiscal measures.

Dealers also said the weakness of the peso stemmed from a pick-up in the demand for dollars as some market players moved to cover their short dollar positions.

There were also concerns about inflation pressures due to the impact of the record increases in oil prices in the previous months.

The Bangko Sentral ng Pilipinas (BSP) said, however, that the peso was trading within range and was likely to close the year at around P56 to the dollar.

BSP Governor Rafael B. Buenaventura said that the market has already discounted the possibility of a downgrade. investment analyst Mark Alan Canizares said the newspaper report gave investors an excuse to lighten their holdings ahead of the weekend.

"Investors tend to want to have a worry-free weekend, so they tend to lighten their holdings ahead," Canizares said. "The market is waiting to see whether there is a continuation of the sell-off or if it will pause on Monday. If it pauses on Monday, that will be a good time to re-enter the market."

The broader all-shares index fell 7.26 points to 1,144.34. Losers led gainers 65 to 13, with 39 stocks unchanged.

"There was foreign selling in the blue chips today," said Ron Rodrigo of Accord Capital Equities.

"I think this is just part of the normal cycle, with the market seeking the natural base for each stock," said Nestor Aguila of DA Market Securities.

"I think the market is taking a breather after a good run in previous weeks, with the correction accelerated by rising concerns about a credit rating downgrade." Aguila added.

The Philippines faces the prospect of having its sovereign debt downgraded on concerns the government is not making enough progress on measures to boost public revenues to trim the country’s massive debt burden.

Telecommunications stocks extended falls on uncertainties linked to international accounting compliance in recording foreign exchange losses, as well as government proposals to levy heavier taxes.

Philippine Long Distance Telephone Co. (PLDT) was the most actively traded stock, ending down P5 at P1,215, while rival Globe Telecom fell 25 at P920.

Interest in financials began to recede, after the central bank hinted it will maintain key interest rates at current levels at its monthly policy meeting on December 16.

Ayala Land Inc. was down 10.00 centavos at P6.70. Manila Electric Co. B shares, available for foreign investors, fell P50 to P26 while A shares declined P25 to P16.

Food and beverage conglomerate San Miguel Corp.’s A and B shares were unchanged at P57 and P75.50, respectively.

Reported by: Sol Jose Vanzi

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