UPDATE 2-Kuwait wealth fund not to cut foreign investments

(Adds more central bank comments in para 11)

By Eman Goma and Rania El Gamal

KUWAIT, Jan 17 (Reuters) - Kuwait's sovereign wealth fund does not plan to reduce its overseas investments despite launching a 1.5 billion dinar ($5.17 billion) fund to invest in local stock markets, the finance minister said.

"We won't lower foreign investment," Mustapha al-Shamali told Reuters on the sidelines of an Arab economic meeting in Kuwait, when asked whether the Kuwait Investment Authority would scale back its foreign activities.

KIA, which manages the Gulf state's massive oil-generated assets, has invested around the globe and last year bought into U.S. banks such as Citigroup Inc (C.N).

In December, it launched on behalf of the government a fund to stabilise the second-largest Arab bourse .KWSE, which fell 38 percent last year during a regional stock market rout triggered by the global financial crisis.

Shamali also said the Kuwaiti government had no plans to support local investment firms struggling with the impact of the worldwide credit crisis.

The country's largest investment bank, Global Investment House (GLOB.KW), said last week it had defaulted on most of its debt, while major Islamic rival Investment Dar (TIDK.KW) has said it needed loans of up to $1 billion.

Asked whether the government would support investment firms, Shamali said: "No. The fund has two goals. First, to invest in the bourse, and secondly to support efforts to prevent a recession."

STEADY INFLATION

Separately, Central Bank Governor Sheikh Salem Abdul-Aziz said he expected the September inflation figure to come in at around 11 percent, as in August.

"It's the same number ... it did not change between August and September," he told reporters.

Kuwait's annual inflation in August, the latest inflation figure to be reported, was 11.64 percent.

He hoped inflation figures from end-2008 would show a decline, he added.

Sheikh Salem told Reuters that 2009 would be a difficult year for the Kuwait economy, adding that the global credit crunch would affect the world's seventh-largest oil exporter.

Kuwait last year had to rescue its fourth-largest lender, Gulf Bank (GBKK.KW), after it was hit by derivatives losses.

He declined to comment on plans by Shamali to lower expenditures, with the exception of wages and investments in the next fiscal year starting in April, as oil revenues, its main source of income, were dwindling.

Sheikh Salem said earlier in January he hoped the government would keep expenditure stable at last year's 19 billion dinars to stimulate the economy. (Writing by Ulf Laessing; editing by John Irish and Anthony Barker)