UPDATE 2-Nigeria announces measures to stabilise stock market

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By Felix Onuah

ABUJA, Aug 26 (Reuters) - Nigeria's finance minister announced a series of measures on Tuesday to stabilise the country's falling stock market, including allowing listed companies to buy back up to 20 percent of their own shares.

Shamsuddeen Usman said the move was the first step by a new presidential advisory team to try to make the capital markets in sub-Saharan Africa's second-biggest economy more attractive to domestic and foreign investors.

The stock exchange in Africa's top oil producer would impose a maximum daily downward price movement of one percent in order to curb volatility, Usman told reporters after a meeting in the capital Abuja with market regulators.

He said the central bank would take "appropriate measures" to improve liquidity in the system if needed and that Nigerian banks would allow longer repayment periods for credit extended to licensed brokers and investors.

The Nigerian stock market .LAGLG has been one of the best-performing frontier markets in the world in recent years, attracting private equity and hedge fund investors from Europe, Asia and the United States.

But the index has fallen by more than a third since the start of March to its lowest level for more than 12 months.

Brokers have said the decline was due to a combination of banks recalling margin facilities, investors selling shares to buy into a slew of private placements and prices which in some sectors looked fundamentally overvalued earlier in the year.

"Following the fall we have seen in stocks in 2008 and simultaneous strong performance in earnings, industry regulators had a meeting with leading brokers to devise a way out of this," said Fola Fagbule, a research analyst with broker Afrinvest.

"Since companies are becoming so much more comfortable about their future prospects and valuations, a logical solution was to allow them to buy back shares," he told Reuters.

Usman said regulators were looking at ways to establish a capital market stabilisation fund, a facility expected to be created by the central bank to stabilise the market in the event of margin calls.

Sceptics say buying equities in the world's eighth-biggest oil exporter is basically just a bet on crude prices rallying and fuelling growth in an otherwise sluggish economy.

The tail-off in the stock market in recent weeks has coincided with a drop in oil prices from record highs.

But other analysts say that argument ignores potential growth in a country of 140 million people -- one of the biggest scaleable economies as yet relatively untapped by sectors including telecoms, banking and retail. (Writing by Nick Tattersall, editing by Dave Zimmerman)