JAKARTA, March 22 (Reuters) - Indonesian shares dropped 1.7 percent on Friday, their biggest intraday slide since July, shaken by the negative sentiment in Europe coupled with the uncertainty over the government's policy on subsidised fuel.
Asian shares hovered near 2013 lows and gold stayed close to a one-month high on Friday as Cyprus scrambled to find a solution to its funding crisis and concern over the health of the euro zone mounted.
Southeast Asia's biggest economy is also mulling over its subsidised fuel policy, which could result in an fiscal deficit larger than 2 percent of the gross domestic product this year.
Jakarta's blue chip index slid 2.12 percent, dominated by mining stocks which dropped 3 percent while the consumer index fell 2.5 percent.
Coal miners PT Bumi Resources and Indika Energy dropped more than 5 percent each to 720 rupiah and 1,210 rupiah respectively.
"The fuel subsidy policy is linked to the political situation. If the government is reluctant to take action, they need to come up with an alternative," said Purwoko Sartono, a Jakarta-based analyst at Panin Sekuritas."
Indonesia's plan to raise the subsidised fuel price was disbanded last year, resulting in a negative reaction from foreign investors.
"There are not many ways to guard the government's balance of payment, but that's what the market players and foreign investors are waiting for. It's not good for the short term, but will benefit the country in the long term." Sartono told Reuters.
Finance Minister Agus Martowardojo also said in order to manage mounting fuel subsidies that could enlarge the fiscal deficit ahead, the Indonesian government could cut its capital spending before deciding to raise the subsidized fuel price.
"If the government were to cut capital spending, it could decelerate the government's role in providing positive multiplier effect to the economy in our view," Jakarta-based Bahana Securities said in a note on Friday.
Indonesian stocks are expected to remain under pressure in the coming weeks, waiting for some certainty in fuel policy, updates on the new central bank governor and anticipating March inflation data.
The Jakarta Composite Index was ended down 79.5 points at 4,723.2, the second highest drop in Southeast Asia, compared with the Vietnamese Index, Singapore's Strait Times and Malaysian Bursa which were down less than 0.4 percent. Thailand shares are down 3.3 percent.
($1 = 9,733 rupiah)
(Editing by Anupama Dwivedi)