Indonesia stocks, rupiah hit by deadly hotel blasts

By Kevin Yao

SINGAPORE (Reuters) - Indonesian stocks and the rupiah currency fell on Friday after explosions at two Jakarta hotels killed 9 people, denting some of the optimism built after last week's decisive presidential election.

Analysts said the attacks may hurt investor confidence in the short-run, but would not change a bullish longer-term view on the country unless they signaled a fresh wave of chaos like that which surrounded leader Suharto's downfall in the late 1990s.

"I would say it damages foreign investor confidence since the attacks appear aimed at Westerners, but not shatters it, so long as there is no further violence for some time," said Sean Callow, a currency strategist at Westpac in Sydney.

Indonesian markets have been among the best in Asia this year on hopes that a re-election of President Susilo Bambang Yudhoyono would quicken reforms in Southeast Asia's largest economy.

Stocks .JKSE fell as much as 2.7 percent after the attacks on the Ritz-Carlton and the Marriott, which was badly damaged by a car bomb attack in 2003. Both are in Jakarta's business district and popular with visiting foreign businessmen.

The index later pared losses and closed down 0.6 percent.

The rupiah fell 1 percent to 10,230/U.S. dollar before state banks stepped in to support it. It closed at 10,200.

The dead included at least one foreigner, and 42 people were injured. A third blast in north Jakarta killed 2.

Yudhoyono told a news conference the bombings were the act of a terrorist group and said they would harm the economy.

Indonesia has not seen a major bomb blast for several years, underscoring progress made in tackling security threats from militant Muslims, which has brought a greater sense of stability and a corresponding jump in foreign investment.

Moody's recently raised its outlook on Indonesia's Ba3 sovereign rating to positive, citing its strong growth prospects based on domestic demand and "effective" economic policies.

Though growth is seen cooling to 3-4 percent this year, it has avoided the worst of the global economic crisis, which has pushed some of its richer Asian neighbors into recession.

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The attacks came as Indonesia sold 35 billion yen ($374 million) in Samurai bonds for the first time, into markets still skittish about credit risks. A source close to the deal said the blasts had little impact on the sale. T315595

Tim Condon, head of Asia research at ING Bank, likened Indonesia to South Korea, whose markets are occasionally roiled by saber-rattling from North Korea only to stabilize soon after.