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ASIAN-CURRENCIESTOKYO: Emerging Asian currencies rose broadly against the dollar and the Malaysian ringgit pulled up from a two-month low on Wednesday, as the dollar's recent short-covering rally showed signs of ebbing.

The Malaysian ringgit stabilised after a sharp slide earlier in the week and pulled up from a two-month low against the dollar touched earlier on Wednesday.

The South Korean won inched higher, tracking gains in South Korean shares and the euro's rise against the dollar.

There were doubts, however, about whether Asian currencies are ready to see a sustained rebound at this juncture.

"Market players are quite cautious in terms of positioning," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia (CBA) in Singapore.

"We have been expecting a rebound in the US dollar because of the short positions, which have reached extremely high levels," Ji said.

"We don't see much of a catalyst in the short-term for an appreciation move," he said, referring to emerging Asian currencies.

The latest Reuters poll on market positioning in the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, that Taiwan dollar, Indian rupee, the Malaysian ringgit and the Philippines peso, showed that investors held long positions in all but one of those currencies, with the sole exception being the Indian rupee.

While investors cut bets on currencies such as the Singapore dollar and Chinese yuan compared to a month earlier, they increased their long positions in the Indonesian rupiah and the Taiwan dollar.

Emerging Asian currencies had been enjoying robust inflows to regional stocks and bonds in recent months based on stronger economic performance and tighter monetary policy amid ample global liquidity.

But they have suffered a pullback this month as investors booked profits and covered their bets against the US dollar.

The dollar's rally against emerging Asian currencies this month has been driven by short-covering by leveraged accounts, said a Singapore-based trader.

"It hasn't been a panicky type of short-covering, although some currencies such as the Malaysian ringgit have seen a sharp move... The currencies that saw the biggest pull-backs are probably the ones that had the most crowded trades," he said.

The peak of such dollar short-covering may now be over, the trader said, adding: "Monday may have been the climax." The dollar had surged 1.4 percent against the Malaysian ringgit on Monday, its biggest one-day percentage gain in almost a year.

Some investors are hoping for a further dollar bounce, looking for a fresh chance to sell the dollar, the trader added.

KOREAN WON

The South Korean won edged higher against the dollar, helped by a 1.6 percent rise in South Korean equities.

The won pulled away from a one-month low of 1095.2 hit earlier this week, in the wake of the Bank of Korea's surprise decision last week to keep interest rates unchanged at 3.0 percent. The move stunned the market, which had been bracing for a rate hike.

CBA's Ji said the central bank will probably raise interest rates to around 3.5 percent to 3.75 percent by year-end, with the next rate rise likely to take place in June.

That outlook for higher interest rates, coupled with the fact that the South Korean won looks undervalued, bodes well for the won in coming months, Ji said, adding that the won's real effective exchange rate is still substantially lower than its five-year average.

"I don't really see a compelling reason to change the outlook for the Korean won just because of the central bank's pause... unless inflation is really getting out of hand, but that remains to be seen," said Ji, who expects the won to rise to 1,070 to the dollar by the end of June, and to 1,050 later in 2011.

SINGAPORE

The dollar edged lower against the Singapore dollar. "The market feels toppish around 1.2450/60," said a trader for a European bank, adding that there were some dollar sellers around that level.

"Still tracking the euro which can be very whippy these days," the trader said.

COPYRIGHT REUTERS, 2011

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