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Saudi currency forwards at 2-yr high, stocks plunge

Stocks plunge as regional unrest continues .

March 2, 2011 9:51 by

Saudi currency forwards hit their weakest in two years on Tuesday as stocks tumbled and investors sought protection following widespread unrest in the Arab world.

Gulf currency markets have come under pressure from revolts against autocratic regimes in the region that have toppled leaders in Tunisia and Egypt and are now challenging the regimes in Libya and Saudi neighbours Bahrain and Oman.

One-year Saudi riyal currency forwards traded as high as 75 points on Tuesday , the highest since December 2008, traders said.

That level implies a 0.2 percent weakening in the currency, which is officially pegged to the U.S. dollar at a rate of 3.75 riyals, over the next 12 months.

“A little bit of tension and panic took the market to 75 in the one-year. We closed for the day at plus 50/70,” said Lyndon Loos, head of MENA forex trading at Standard Chartered in Dubai.

“This is mainly on the back of the Saudi stock market coming off 6.8 percent and the story about the tanks on the border with Bahrain.”

A Saudi official denied on Tuesday a report in an Egyptian newspaper that the kingdom had sent tanks to Bahrain to try to quell protests there.

The stock market  fell 6.8 percent to 5,539 points, its biggest drop since November 2008 and lowest close since July 2009, after authorities detained a Shi’ite cleric, raising fears that unrest could spread to the kingdom’s religious minority.

In Oman, troops fired into the air near a northern port to clear a fourth day of protests by Omanis demanding jobs and political reforms.

Tens of thousands of mainly Shi’ite protesters marched through Bahrain’s capital Manama on Tuesday to pressure the Sunni-led government to resign. They have been occupying a central square for about two weeks, raising fears for the future of Bahrain’s financial market and tourist economy.

“Dollar/Saudi forwards are going up. We were recommending that trade on the political turmoil in Bahrain because Saudi was the most liquid proxy for Bahrain,” said Elisabeth Gruie, emerging market strategist at BNP Paribas in London.

“Now, it’s being reinforced because of market fears of possible local issues with a demonstration expected on March 11, and the huge drop in equities,” she said.

The cost of insuring Saudi debt against default rose to 140 basis points on Tuesday, the highest since Feb. 21 and up from 136.6 at Monday’s close, according to Markit data .

Saudi Arabia saw two small protests over the past month in its Eastern province, which holds much of the oil wealth of the world’s top crude exporter.

“I think we see a resistance around the 70 and 75 area in the one-year Saudi forwards, but we have to watch the developments in the region very closely,” Loos said.

(Additional reporting by Carolyn Cohn in London; Editing by Hugh Lawson)

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