Turmoil hits shilling despite Kenya govt assurance

A man is beaten by mob while another runs away during tribal clashes in Nairobi January 1, 2008.

NAIROBI (Reuters) - Kenyan Finance Minister Amos Kimunya said on Wednesday the shilling currency was "within control" following a disputed presidential election that sparked ethnic clashes and threatens to drive away foreign investment.

"(The central bank) has not raised any alarm. (The shilling) is within control," Kimunya said, urging foreign investors to remain engaged in east Africa's biggest economy.

"People will be on a wait and see attitude so there will be little trading. We still have a good comfort zone, so we are not panicking on that," he told a news conference.

But the turmoil sent the shilling to a 6-week low of 66.60/66.90 to the dollar in thin offshore trade.

One trader in London said the shilling had traded at 67.25 and 67.50 per dollar. "There are not too many trades out there and hardly any liquidity. Not much is happening on screen as the big players are not there. They can't get the liquidity that they need," he said.

"It's a wait-and-see situation as tomorrow is the big (opposition) march in central Nairobi."

Another dealer in Johannesburg said: "There was a lot of panic from local importers. The guys are all squaring out their positions as they don't want to keep (long) positions overnight."

The shilling opened after a two-hour delay to the start of trade at 63.70/80 -- the level it closed at on December 24, before Christmas holidays and the December 27 general election.

The delay was designed to give commercial banks time to talk to clients and determine the level of supply and demand for the U.S. currency. But no trade was reported for hours.

"A few trades have gone through between 66-69. People are digesting what is going on. Normal trade has taken place but with wide spreads," said Bethuel Karanja, a senior dealer at I&M Bank.

Dealers expect the local unit, which strengthened gradually throughout 2007, to further weaken against the dollar due to the post-election violence that has killed some 300 people.

The Nairobi Stock Exchange's main NSE 20-share index fell 5 percent to close at 5,167.18 points.

The index closed at 5,444.83 points on December 24, compared with an all-time high of 6,161.46 points hit on January 12, 2007.

"The index took a thorough beating because of all the uncertainty in the political field," said a broker.

TEA, COFFEE

Elsewhere, Kenya's leading commodities sectors postponed their weekly auctions.

A tea broker said the weekly tea auction, scheduled to resume on Wednesday after the New Year break, had been postponed until some "normality" resumed.

"We are watching the situation: if some normality comes back, we will resuscitate the business," he told Reuters.

The weekly coffee auction, scheduled to resume on January 8, was pushed back by a week, an auction official said.

Business leaders said trade across all sectors would be hurt if the turmoil persisted. The unrest has uprooted tens of thousands of people and squeezed fuel and food supplies.

The country's business community said on Sunday that the government was losing 2 billion shillings ($31.35 million) a day in tax revenues for every day they had to stay closed because of the ethnic clashes and looting.

Kenya, East Africa's largest economy, depends largely on tourism and agriculture to earn its foreign exchange and is also a manufacturing and financial services hub in the region.