Foreign inflows in emerging East Asia could pose risk-ADB

HONG KONG Nov 24 (Reuters) - A rapid economic rebound, strong currency gains and higher interest rates in emerging East Asia are drawing in large foreign investments, inflows which could be potentially destabilising, the Asian Development Bank said in a report.

The Manila-based multilateral bank said the risks to the market outlook are "moderately balanced on the downside compared with the first half of the year."

ADB which considers emerging East Asia as including China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam, made these remarks in its report "Asia Bond Monitor", released on Tuesday.

The bank also warned that major risks to the market outlook included uncertainty of the global economic recovery, a possible rise in inflation, premature tightening of monetary policies and potentially destabilizing capital inflows.

"These inflows along with ample domestic liquidity, still accommodative monetary policies, and limited flexibility of exchange rates in the region-could pose major challenges for macroeconomic management," it said.

ADB said the total outstanding debt in emerging East Asia's local currency bond market grew by 14.8 percent to $4.2 trillion in the third quarter compared with a year ago, up from the 13 percent in the second quarter.

It said that local currency bonds accounted for 62 percent of gross domestic product at the end of the third quarter, compared with 58 percent at close of the second quarter.

"These robust growth rates reflect financing needs for government fiscal stimulus programs, as well as corporate sector funding needs in infrastructure and energy," it said. (Reporting by Umesh Desai; Editing by Toby Chopra) ((umesh.desai@thomsonreuters.com; +852 2843 6935; Reuters Messaging: umesh.desai.reuters.com@reuters.net; )) (If you have a query or comment on this story, send an email to newsfeedback.asia@thomsonreuters.com)