Taiwan dollar rises on funds, limits gains

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TAIPEI, June 2 (Reuters) - The Taiwan dollar climbed to a one-week high on Monday as foreign funds poured into a bouyant stock market, though US dollar purchases by the central bank and importers limited the local currency’s gains.

The Taiwan dollar TWD=TP firmed to as high as T$30.305 to the U.S. dollar, the strongest intraday level since May 23 when the day's high was T$30.296. It had strengthened to T$30.317 by 0201 GMT from Friday's close of T$30.413.

Volume on the main Taipei Forex Inc exchange was $317 million after an hour of trade, slightly lower than $319 million during the same period on Friday.

“There was some Taiwan dollar demand from foreign institutions, but the central bank started intervening by buying U.S. dollars. The central bank has made such moves recently to keep trade in a tight range,” said a dealer in Taipei.

Taiwan stocks .TWII rose 0.7 percent in early trade on Monday. On Friday, foreign funds bought into Taiwan stocks for a second straight day, purchasing a net T$8.316 billion ($274 million).

Another dealer said prospects of higher Taiwan interest rates also boosted the Taiwan dollar, especially after the island’s government reported better-than-expected GDP growth of 6.06 percent in the first quarter.

The market expects the central bank to hold its next quarterly board meeting at the end of June and some dealers predict the authority will raise rates by as much as 25 basis points to curb inflationary pressures.

Another rise in Taiwan’s main policy rate would widen the island’s rate advantage over the United States, which will support the Taiwan dollar.

In the non-deliverable forwards market, six-month NDFs were quoted at -0.440/-0.380, compared with Friday’s -0.400/-0.350, indicating that the market expects the Taiwan dollar to firm by a larger degree than previously anticipated.

On the smaller Cosmos exchange COSMOS1, the Taiwan dollar stood at T$30.318 to the U.S. dollar from the previous close of T$30.390. (Reporting by Lee Chyen Yee; editing by Jonathan Hopfner)