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UPDATE 1-Kenyan shilling firms vs dollar, shares slip

* Shilling's outlook remains bearish

* Stocks' bull run expected to continue

(Recast with markets close, stocks)

By Kevin Mwanza

NAIROBI, Oct 12 (Reuters) - The Kenyan shilling

firmed on Friday as banks sold dollars ahead of the weekend, but the local currency's outlook remained bearish due to importer demand for the greenback.

Kenyan shares slipped, led by fuel company KenolKobil

, which extended losses that have been triggered by disappointing earnings results.

At the 1300 GMT market close, commercial banks quoted the shilling at 85.00/20 to the dollar, slightly firmer than Thursday's close of 85.10/30.

"We saw some position squaring by interbank players today that helped the shilling a bit. But it could weaken next week on importers' dollar demand," said a trader at a commercial bank.

Traders see the shilling weakening in the medium term as an aggressive rate-cutting cycle filters through the economy and political uncertainty rises as the east African nation heads towards a general election next March, the first since violence erupted after a disputed presidential poll in 2007.

The central bank has cut the benchmark rate

twice since July by a total 500 basis points to 13 percent, after holding at an ultra-high 18 percent for seven straight months to reign in high inflation and foreign exchange volatility.

The next rate setting meeting is scheduled for Nov. 7.

"If the central bank cuts the rate at the meeting next month the shilling will depreciate further ... but not very drastic as demand slows down towards the December festive season," said Julius Kiriinya, a trader at African Banking Corporation.

On the stockmarket, the main NSE-20 share index

inched 0.05 percent lower to end the week at 3,995.03 points, in a slow session that saw turnover more than halve from the previous day to 167 million shillings.

"The NSE dips have been mostly on low volumes, while its ups have been on massive trades ... that means this year's bull run is still on course," said Ronald Lugalia, an analyst at Afrika Investment Bank.

Kenyan shares have rallied 25 percent this year as they recovered from a slump in 2011 and boosted by investors returning from a slowing debt market and by interest rate cuts.

KenolKobil, Kenya's largest fuel firm by sales, extended its fall by 1.7 percent to 14.15 shillings a share.

The oil firm's shares have dropped 5.7 percent this week on poor results and investor fatigue over the conclusion of a takeover deal by Switzerland-based Puma Energy.

In the debt market, bonds worth 4.2 billion shillings were traded, up from 1.9 billion shillings on Thursday.

...........................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:

(Editing by James Macharia and Susan Fenton)

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

Keywords: KENYA MARKETS/