Market extends losses as investors await US rate hike

Share prices closed 0.54 percent lower yesterday, extending losses as investors stayed on the sidelines waiting for an expected US interest rate hike later this week, dealers said.

They said there was some concern the local central bank could follow the US Federal Reserve lead and increase borrowing costs although it looks as though it will remain on hold for the time being.

Poltical tensions surrounding President Arroyo, who faces a second impeachment attempt, added to the negative tone.

The composite index lost 11.31 points to 2,081.09, after trading between 2,075.81 and 2,094.67. Turnover was thin at 510.85 million shares worth P914.85 million ($14.42 million).

The broader all-shares index retreated 3.70 points to 1,321.61.

Losers led gainers 41 to 25, with 48 stocks unchanged.

"Investors prefer to stay out of the market. They would rather be elsewhere," said Nestor Aguila of DA Market Securities.

He said equity prices could fall further if yields of fixed-income assets continue to rise.

Treasury bill rates rose sharply at Monday’s auction and dealers said this prompted investors to shift their funds to fixed-income assets.

The 91-day T-bill average rate, which banks use in pricing loans rose to 6.50 percent from five percent the previous week.

Meanwhile, Aguila said bouts of bargain-hunting were seen in some stocks such as the banks which have fallen sharply as investors worried about anemic loan growth should interest rates increase.

Philippine Long Distance Telephone Co. (PLDT) was the most actively traded stock, ending down P30 to P1,745.

Bank of the Philippine Islands rose P1.50 to P47, Ayala Land fell 25 centavos to P11 and their parent Ayala Corp. shed P5 to P337.50.

San Miguel A was steady at P65 while its B shares added P1 to P72.50.

Interest-rate increases "would have some impact" on local property sales, said Leo Venezuela, an analyst at ATR-Kim Eng Securities Inc. in Manila.

Higher borrowing costs also encourage saving and deter spending, which may hurt the economy.

"If interest rates go higher, valuations of equities go down," Venezuela said. – AFP