UPDATE 5-Indonesia plugs seeping confidence; keeps bourse shut

(Adds central bank on rupiah)

By Harry Suhartono and Andreas Ismar

JAKARTA, Oct 10 (Reuters) - Indonesia struggled to halt a precarious drop in investor confidence on Friday as sliding global markets threatened to thwart government efforts to prevent a repeat of the crisis that battered its economy a decade ago.

The authorities kept the stock market closed for a third day in a row after a free-fall in global equities markets and despite new measures aimed at calming fears that Southeast Asia's largest economy faced a new crisis.

But suspected intervention by the central bank failed to prop up the rupiah currency IDR=, which briefly touched the 10,000 per dollar level, the weakest since December, 2005.

A central banker told reporters the rupiah's move was in line with other currencies.

"Of course, we will remain vigilant so as to prevent sharp volatility," senior deputy governor Miranda Goeltom said.

Indonesia had been due to reopen its stock market on Friday, but reversed the decision after a fresh global rout in equities.

Fuad Rahmany, the chairman of the capital markets watchdog, said the decision keep the market closed had been made "based on overall macroeconomic considerations".

"Hopefully by Monday we will be quite prepared to open our market," he said in a mobile phone text message, adding that 95 percent of exchange members backed the move not to reopen yet.

Erry Firmansyah, president director of the exchange, said earlier the decision was made "to protect investors and prevent further sharp falls" in the market.

Brokers had earlier said that stocks, which fell more than a fifth this week before trading was suspended and have lost 47 percent this year, looked set to fall sharply again on Friday.

Goldman Sachs said in a research report on Friday selling pressure on stocks when the market reopens was unlikely to subside soon, but it did not see a systemic threat and believed regulators and policy makers could handle the situation.

But in the debt market, Indonesia appeared to be suffering from a particularly acute lack of trust from foreign investors, with the cost of protection against defaults soaring.

Indonesia's five-year credit default swaps INDONE5UA=GFI surged to 725 basis points at one point, from 600 basis point early on Friday. That was well above the 410 bps at which the similarly-rated Philippines' CDS PHILP5UA=GFI was trading at.

"People just want to get their money out of Indonesia," said a Singapore-based fund manager. "We haven't forgotten what happened 10 years ago."

In 1998, a year which saw the late autocratic President Suharto stand down amid huge protests, the economy shrunk by about 13 percent and inflation hit 78 percent.

The rupiah also crashed to around 15,000 to the dollar and authorities put up interest rates to 70 percent at one point.

POLICY DILEMMAS

In line with some other countries, Indonesia eased on Thursday accounting rules on the fair value of assets, or mark-to-market. It has also eased reserve requirements for commercial banks as well as made it easier for listed firms to conduct share buybacks.

Finance Minister Sri Mulyani Indrawati said after announcing the new measures on Thursday she expected them to "lead to a more conducive and calm situation not only in the stock exchange but also in our banking sector and the money market."

The central bank, Bank Indonesia, also said it now saw more room to cut interest rates.

It had only on Tuesday stated that inflation was its main concern, when it raised its overnight policy rate BIPG by 25 basis points to 9.50 percent.

"I think the move to raise the rate was not the right move," said Purbaya Yudhi Sadewa, an economist at Danareksa Research Institute, noting that inflationary expectations had declined.

Some analysts had at the time thought the central bank was underpricing the impact of the global financial turmoil on the economy.

Indonesia was the country hardest hit by the Asian financial crisis a decade ago, due in part to large corporate foreign debt and a weak banking system. Political upheaval also meant it took longer for the country to recover.

President Susilo Bambang Yudhoyono told reporters on Thursday evening that his administration had learned from the previous crises and "the situation is fully under control".

But Lina, an owner of a small convenience store in central Jakarta, said she was fearful of a repeat of the crisis.

"We don't want what happened in 1998 to happen again."

(Additional reporting by Olivia Rondonuwu, Muklis Ali, Tyagita Silka, Adriana Nina Kusuma and Kevin Yao in Singapore)

(Writing by Ed Davies; Editing by Jacqueline Wong)