More rate hikes "will make peso fixed-income investments attractive, limiting or diverting the amount of capital that will go into equities," PCCI Securities said in a note.

The Philippine currency rallied to as high as 44.44 against the U.S. dollar in morning trade from its closing level of 45.03 on Thursday.

"Given yesterday's bolder move, and continued upside inflationary risks from higher domestic transport prices and wages, we now think the central bank will hike rates by a further 75 basis points by the year-end," said Lim Su Sian, economist at DBS Bank.

The 30-company composite index dropped 4.10 points or 0.2 percent to close at 2,389.52, after gaining a modest 0.4 percent during the session. The benchmark ended with a weekly loss of nearly 2 percent.

The all-share index edged 0.95 point or 0.1 percent higher at 1,516.83.

There were 41 decliners and 40 advancers, while 50 ended flat.

Turnover improved but was still lean at 2.0 billion pesos compared to 1.8 billion pesos on Thursday.

Wall Street's extended rally on Thursday amid sinking oil prices did not help investors overcome their fears about inflation and further interest rate hikes.

Oil prices rose in Asia on Friday after three days of heavy falls that dragged prices down almost $16 a barrel on worries over economic growth and slowing demand. New York's main oil contract, light sweet crude for August delivery, rose 51 cents to $129.80 a barrel. It has fallen sharply since striking record highs above $147 a week ago.

The contract lost $5.31 to close at $129.29 a barrel on Thursday on the New York Mercantile exchange, after similar plunges the previous two days.

The central bank expects inflation to remain at double-digit levels for the rest of the year and is looking at a peak of 12 percent. Inflation soared to a 14-year high of 11.4 percent in June.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. warned on Thursday that "sustained high inflation can unseat inflation expectations and potentially create a repeating cycle of lingering inflation and wage pressures that could prove costly to the economy."

The central bank's post-meeting statement sounded more hawkish than previous ones, said HSBC economist Frederic Neumann.

"Our initial call has been for the policy rate to end the year at 6 percent. But, with oil prices pushing ever higher and the peso beginning to buckle, we are beginning to see significant upside to our rate call, with the benchmark possibly rising to 6.5 percent year-end from 5.75 percent currently," Neumann said.

The country's biggest property developer Ayala Land Inc. fell 3.4 percent to 8.50 pesos.

Investors also dumped top lenders, with Metropolitan Bank & Trust Co. slipping 3.2 percent to 30.50 pesos. Bank of the Philippine Islands lost 2.6 percent to 38 pesos.

Lending some support to the key index, Philippine Long Distance Telephone Co. gained 0.4 percent to 2,405 pesos.

($1 = 44.5 pesos)

enrico.delacruz@thomsonreuters.com

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- The dwindling domestic shoe manufacturing industry now accounts for a meager 10 percent of the huge demand of footwear in the country in light of the influx of cheap shoes following a global liberalization abetted by technical smuggling which has pushed the once booming industry aside.

- NG posts P769-M surplus in June The government reported yesterday a budget surplus of P769 million in June despite government promises to spend more to support the economy.

- Govt urged to reject NAMA trade plan The government should reject the latest trade proposals in the Non-Agriculture Market Access (NAMA) negotiations in the World Trade Organization (WTO) because the proposal would not only result in low tariffs for fish imports but the country would also lose its option to protect the local fisheries sector.

- As it failed to establish evidence on its overpricing raps against the local oil companies, the Department of Energy (DoE) is seeking dialogue with IBON Foundation to sift through allegations that the parent companies of the multinational oil firms have been raking in windfall profits.

- MWCI is coming up with a new master plan for a sewerage program which will raise sewerage system coverage in Metro Manila up to 63 percent in 2022 through a combined decentralized system and a desludging tie-up with the local governments.

- Garcia denies GSIS CTPL monopoly charge by PIRA Government Service Insurance System (GSIS) belied allegations hurled by the Philippine Insurers and Re-insurers Association (PIRA) that monopoly will be created with the state-pension fund providing the compulsory third party liability (CTPL) insurance.

- Falling peso trims BSP losses to P18.25 billion in 1st 5 months The Bangko Sentral ng Pilipinas (BSP) for the first time in more than a year posted a small net gain of R120 million in May, unaudited BSP financial data show.

MANILA TIMES:

- The Philippines incurred its first dollar deficit in June, after six months of enjoying surpluses, according to the Bangko Sentral ng Pilipinas (BSP).

- BSP Governor Amando Tetangco Jr. said the countrys balance of payments (BOP) registered a deficit of $248 million last month, cutting the first-half surplus to $1.934 billion from $2.182 billion at end-May.

- Local share prices closed lower Wednesday as worries over the US financial sector trumped a sharp fall in oil prices, dealers said.

- The Civil Aeronautics Board (CAB) has ordered airlines to grant a 20 per cent discount on domestic fares for persons with disabilities (PWDs).

- Pilipinas Shell Petroleum Corp. said the lack of infrastructure is hindering the transport sectors shift to alternative fuels like compressed natural gas (CNG) and liquefied petroleum gas (LPG).

- Moves to lower electricity rates in the country may scare off potential investors in the governments power sector privatization program, a consultancy firm said.

- The Fair Trade Alliance (FTA) fears the new drafts to be presented at the upcoming

World Trade Organization (WTO) mini-ministerial meeting would further increase the trade imbalances between developed and developing nations.

- The government kept its first-half budget gap below the ceiling as it cut spending during the period, the Department of Finance said Wednesday.

- Security Bank Corp. (SBC) has widened its branch network in key provincial areas to expand its deposit base and corporate lending business.

- Ayala Land Inc. (ALI) is setting aside 1 percent of its net income for corporate social responsibility top (CSR) activities, the companys executive said Wednesday.

- San Miguel Brewery Inc. (SMBI) disclosed it has spent more than a third of its proceeds from the primary offer of its shares to the public mainly on systems maintenance and operations improvement.

- NEC Philippines is targetting to get a big chunk of the over US$ 215-billion telecom services market in the Asia Pacific driven by demand for broadband, Internet Protocol (IP)-based and Third Generation (3G) services as well as onpremise solutions.

- The Australian Government, through the Australian Centre for International Agricultural Research (ACIAR), launched here yesterday two big horticulture programs aimed to improve the domestic profitability and export competitiveness of selected vegetable and fruit value chains in the southern Philippines.

- Overseas Filipinos remitted $US6.79 billion in the first five months of the year, up 14.74 percent year-on-year, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

- Ayala Lands (ALI) proposed P4-billion bond issue has received the highest rating possible of "PRS Aaa" which "is given to debt obligations with the smallest degree of investment risk."

MANILA TIMES:

- Money sent home by overseas Filipino workers (OFWs) rose significantly in the first five months of the year due to steady growth of deployed workers, the Bangko Sentral ng Pilipinas (BSP) said Tuesday.

- In a statement, BSP Governor Amando Tetangco Jr. said total remittances grew 14.7 percent year on-year to $6.8 billion in the five-month period. In May alone, remittances rose 15.6 percent year on year to $1.4 billion.

- Local share prices fell on Tuesday as other Asian markets slid too amid concern over the global economy, dealers said.

- The Bureau of Internal Revenue (BIR) warned that its first-half collections may have slowed due to the governments failure to secure short-term borrowings scheduled for the second quarter this year.

- Prices of construction materials in Metro Manila grew by double digits last month, as oil hit fresh records, the National Statistics Office (NSO) said Tuesday.

- Households may soon avail of prepaid meters to control their electricity consumption after the Energy Regulatory Commission (ERC) released the draft rules for the said scheme.

- The state-run power sector privatization arm has issued an invitation for the sale of two government-owned diesel power plants, the 146.5-megawatt Panay and 22-megawatt Bohol diesel power facilities, Power Sector Assets and Liabilities Corp. PSALM announced in a statement.

- Despite the raging debate on food versus fuel, the benefits biofuels can bring far outweigh such issues that have yet to affect the Philippines, according to an energy consultancy firm.

- The Tambuyog Development Center on Tuesday warned that the latest trade proposals in the Non-Agriculture Market Access (NAMA) negotiations in the World Trade Organization may hamper the safeguards Philippines have put in place to protect the local fisheries sector.

- The Philippines is on track with its efforts to become more competitive in global trade, said Cesar Bautista, National Competitiveness Council (NCC) co-chairman, citing the countrys improved ranking in an annual global competitiveness survey.

- Globe Telecom Inc. is opposing a government plan to cut interconnection charges and instead will offer a promo package reducing its text messaging or SMS (short messaging service) rate by half.

- Ayala Land Inc.s (ALI) planned borrowing through the sale of bonds has garnered the highest credit rating from Philippine Rating Services Corp.

- Maynilad Water Services Inc. said it completed rehabilitation works in the central part of Malabon City.

The broader all-share index fell 9.97 points or 0.6 percent at 1,517.25.

"Investors are exiting from risky assets as the turmoil in the U.S. financial markets continues. Until there is more clarity on how these problems can be contained people would rather go to safer grounds," said Conrado Bate, president of online brokerage Citiseconline.

Escalating instability in the U.S. financial sector which prompted the Federal Reserve to announce it was ready to give emergency funds to mortgage giants like Fannie Mae and Freddie Mac are heightening fears that the slowdown in the world's largest economy will spell more growth troubles around the globe.

Federal Reserve Chairman Ben Bernanke told Congress on Tuesday the fragile economy is facing "numerous difficulties" despite the Fed's aggressive interest rate reductions and other fortifying steps.

Bernanke also warned that rising prices for energy and food are elevating inflation risks amid persistent strains in financial markets, rising joblessness and housing problems.

"It seems like a perfect storm is coming, what we have now is the calm before the storm. In this case, it will hit hard financial companies," said Jose Vistan Jr., research director at AB Capital Securities.

Investors also opted to sit on the fence ahead of Thursday's meeting of the Philippine central bank, which is widely expected to raise interest rates to curb inflation, now running at 14-year highs.

Headline rates were raised by 25 basis points early last month for the first time in nearly three years as second-round effects of soaring energy and food prices pushed inflation higher.

"Inflation and higher interest rates are forcing economists to revise forecasts, especially as the central bank said it will be reviewing its inflation and growth scenarios," said Bate of Citiseconline.

"These things are definitely not encouraging for the market, it puts an overhang on an already weak market."

Index leader Philippine Long Distance Telephone Co. shed 1.2 percent to 2,395 pesos. Conglomerate Ayala Corp. slipped 0.9 percent to 252.50 pesos.

Interest rate-sensitive stocks declined, with property developer Ayala Land Inc. down 1.1 percent to 9.10 pesos and Filinvest Land Inc. off 2.7 percent to 72 centavos.

Top-ranked Metropolitan Bank and Trust Corp. dipped 1.6 percent to 31.50 pesos.

($1 = 45.46 pesos)

rocel.felix@thomsonreuters.com

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