UPDATE 1-Kenyan shilling falls on month's end dollar demand

Tue Jan 28, 2014 10:22am EST

(Adds markets close, stocks, bonds)
    By George Obulutsa
    NAIROBI, Jan 28 (Reuters) - The Kenyan shilling 
weakened against the dollar on Tuesday, driven by demand for
dollars as commercial banks covered their short positions. The
main stock index fell for the second day in a row.
    At close of trade at 1300 GMT, commercial banks quoted the
shilling at 85.95/86.05 to the dollar, compared with Monday's
close of 85,80/90.
    "The dip in the shilling is basically driven by corporate
end-month demand and banks ... coming out of short positions,"
said Peter Mutuku, the head of trading at Bank of Africa.
    Traders said the shilling was likely to remain stuck in a
range, with rising overnight interbank lending rates pointing to
tightening liquidity in the market.
    "That will be supportive of the shilling," said Duncan
Kinuthia, head of trading at Commercial Bank of Africa.
    The overnight borrowing rate for banks rose to 11.50 percent
on Monday from 10.50 percent on Friday, the fifth consecutive
rise, offering further support for the shilling. 
    Tighter shilling liquidity makes it slightly more expensive
for banks to fund long dollar positions, which helps strengthen
the local currency. The shilling has gained about 1.3 percent
since the start of 2014.
    Traders said they expected it to trade in the 85.70-86.30
range in the days ahead.
    On the Nairobi Securities Exchange, the main NSE-20 Share
Index closed 17.59 points, or 0.35 percent, lower at
5,060.53 points.
    Stock traders and analysts say one reason for the drop was
investors booking profit on blue-chip shares. Those include
local telecoms company Safaricom, which is typically
the most heavily traded stock on the exchange in any given
session. It closed 2.4 percent lower at 12.05 shillings a share.
    "Safaricom is just profit-taking, and every time we see
profit taking of Safaricom you can expect the same feeling to
spread to ther counters in the market that have been so active,"
Ronald Lugalia, a research analyst at Afrika Investment Bank,
said.
    On the secondary market, government bonds valued at 3.37
billion shillings were traded, up from 2.20 billion shillings a
day before.
    
               ...........................Shilling spot rates
                  .....................Shilling forward rates
                           .......................Cross rates
         ..................................Local contributors
           .......................Central Bank of Kenya Index
          .....................Kenyan Bonds contributor pages
                          ...............Treasury bill yields
        ..................Central bank open market operations
        .........................Horizontal repo transactions
         ,       ................Daily interbank lending rate
              .............................Kenya Bond pricing
             ..................Real time Africa economic data
 <ECI & AFR> ...........................African economic news
          .................................NSE-20 Share Index
         .................................NSE All Share Index
             ...........................FT NSE Kenya 15 Index
             .......................... FT NSE Kenya 25 Index
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 (Additional reporting by Drazen Jorgic; Editing by Larry King)
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