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UPDATE 1-Kenyan shilling weakens, could recover on tea inflows

* Pent up importers dollar demand weigh shilling

* Barclays Bank drag down main stocks index

(Recast with markets close, stocks)

By Kevin Mwanza

NAIROBI, Oct 8 (Reuters) - Dollar demand from banks and importers pushed the Kenyan shilling

lower on Monday after it failed to break below the 85.00 support level last week, while stocks were dragged lower by Barclays Bank of Kenya

.

At the market close, commercial banks quoted the shilling down 0.2 percent at 85.05/25 per dollar from Friday's close.

"Dollar demand proved to be more than expected, mostly from interbank players. We've also seen some importers buying (dollars) too," said Peter Mutuku, a trader at Bank of Africa.

"The trend seems to have changed, and as traders it's wise to follow it."

Traders said they expected the shilling to recover in coming days, however, as tea exporters start selling the U.S. currency after an auction on Tuesday.

They said transactions by the central bank to mop up shillings could squeeze the short-term money market, which might lend further support to the local currency.

The central bank mopped up excess liquidity in the market on Monday, soaking up 9.4 billion shillings ($110.7 million) - more than the 7 billion shillings it had intended - after receiving bids worth 9.53 billion shillings.

"Below 85.00 shillings there is a bit of pent-up demand (for dollars), but tea inflows may come in from Tuesday," said Christopher Muiga, a senior trader at Kenya Commercial Bank.

In stocks, the main NSE-20 Share Index

slipped 0.1 percent to 3,971.68 points, as turnover dropped 63 percent to 151 million shillings.

Shares in Barclays Kenya fell 3 percent to 13.95 shillings, which analysts attributed to investors keen on the banking sector choosing its competitors' shares for capital gains.

"Fundamentally Barclays shares rank lowly compared to its sector peers. Investors could be selling to buy into other, better-performing banking stocks," said Rufus Mwanyasia, an analyst at Tsavo Securities.

Kenya Commercial Bank

, the country's biggest bank by assets, rose 0.9 percent to 28.25 shillings, while Co-operative Bank

added 1.3 percent to 12.10 shillings.

In fixed income, corporate and government bonds worth 3.1 billion shillings ($36.5 million) were traded, down from 3.5 billion shillings on Friday.

...........................Shilling spot rates

.....................Shilling forward rates

.......................Cross rates

..................................Local contributors

.......................Central Bank of Kenya Index

.....................Kenyan Bonds contributor pages

...............Treasury bill yields

..................Central bank open market operations

.........................Horizontal repo transactions

,

................Daily interbank lending rate

.............................Kenya Bond pricing

..................Real time Africa economic data

...........................African economic news

.................................NSE-20 Share Index

.................................NSE All Share Index

...........................FT NSE Kenya 15 Index

.......................... FT NSE Kenya 25 Index

SPEED GUIDES:

($1 = 84.9500 Kenyan shillings)

(Editing by James Macharia)

((nairobi.newsroom@reuters.com)(Tel: +254 20 2224717))

Keywords: KENYA MARKETS/