Philippine Peso Falls on Speculation Credit Turmoil to Persist

Sept. 25 (Bloomberg) -- The Philippine peso fell, ending a five-day rally, on speculation investors will avoid the nation's assets on concern turmoil in credit markets will persist, slowing global economic growth.

The peso slid along with seven of the 10 most-actively traded currencies in Asia outside of Japan after the International Monetary Fund warned yesterday of ``protracted'' economic instability due to credit market turmoil stemming from losses in U.S. subprime mortgages. The U.S. is the biggest buyer of Philippine goods and the largest source of remittances.

``The currency's weaker on renewed jitters on the impact of the subprime crisis,'' said Jonathan Ravelas, market strategist at BDO Unibank in Manila. ``We can't underestimate the effect of the subprime because recent events like the Federal Reserve cut signaled the U.S. economy's headed into a tailspin.''

The currency declined 0.2 percent to 45.255 per dollar in Manila as of 10:32 a.m., according to Tullett Prebon Plc, the world's second-largest inter-dealer broker. The peso fell from a six-week high of 45.145 touched yesterday as the Philippine Stock Exchange Index lost 0.1 percent.

The IMF said in its Global Financial Stability Report yesterday that the turmoil in debt markets ``should not be underestimated'' and will likely slow global economic growth.

The perceived risk of owning Philippine government bonds rose, according to credit-default swaps.

Contracts tied to the nation's dollar-denominated debt climbed 4 basis points to 134.5 basis points, prices from BNP Paribas SA show. The cost to protect $10 million of debt from default for five years is equivalent to $134,500.

Credit-default swaps are financial instruments used to speculate on a borrower's ability to repay debt. A higher price suggests worsening perception of credit quality.