Interbank speculators reduced dollar positions, helping the Asian currencies recoup falls as the Chinese yuan rebounded with Beijing-controlled banks unloading greenbacks.

Investors remained skeptical over the euro zone's efforts to prevent the debt crisis from spreading into the continent's banks after Slovakia rejected expansion of a rescue fund.

But some speculators expect a rebound in emerging Asian currencies, citing hopes that Slovakia's legislature, in a second vote, will approve the bill by the end of this week.

"I will keep current short dollar/Asia positions as we are slowly getting back to normal. The market might be shaken one or two more days but everything will be OK overall," said a senior dealer at an Asian bank in Kuala Lumpur.

He said he would buy the Singapore dollar more if the currency weakens to 1.29 per US dollar and the Malaysia ringgit if it softens to 3.16. The Singapore dollar and the ringgit stood at 1.2841 and 3.1420, respectively.

On Tuesday, most of their peers fell as sustained doubts over the European rescue fund plan prompted investors to take profit from emerging Asian units.

Slovakia's rejection of an expanded European rescue fund soured sentiment further and pushed down the regional units.

They also came under pressure from speculation that China may slow its currency appreciation amid increasing conflict between the US and China over the yuan.

But the euro rose and the yuan rebounded in late Asian trade, helping emerging Asian units, with some such as the ringgit rebounding.

"Bids for dollar/Asia are still good as some are still worried about the euro zone. But I expect the euro to rise more as we might not see more problems from Europe," said a European bank dealer.

WON

South Korean exporters bought the won taking advantage of its earlier loss, prompting stop-loss dollar sales.

The South Korean currency earlier weakened to 1,177.8 as offshore funds covered dollar-short positions and interbank speculators built up long positions.

Investors naturally will be watching the central bank's policy meeting on Thursday.

The Bank of Korea is expected to keep its policy rates at 3.25 percent, a Reuters poll showed.

Currency dealers see little chance that the central bank will cut rates, which is what Indonesia did on Tuesday.

"It is not a time (for South Korea) to cut rates yet, given still high inflation," said a senior foreign bank dealer in Seoul.

PHILIPPINE PESO

The Philippine peso turned slightly higher on the euro's rise after falling on local corporate dollar demand.

The market gave attention to the central bank's comments on policy easing. The central bank governor said it will study Indonesia's rate cut when it reviews policy next week, though officials indicated they have options to a rate cut for encouraging growth.

Copyright Reuters, 2011