A tentative attempt at recovery in troubled Asian stock markets took a body blow as the rupiah plunged on Wednesday to an all-time low against the dollar.

The Indonesian currency was down sharply, dropping through the 11,000 level, as a combination of economic and political worries took their toll .

Reports that major Indonesian companies and banks were starting to repay overseas loans in rupiah and not dollars were pressuring the currency, foreign exchange dealers said.

And President Suharto's statement om Tuesday that he was ready to stand for re-election as president spurred renewed active selling in the rupiah against the dollar, resulting in active short-covering of the dollar against the yen.

"The view is circulating in the market that the rupiah will keep falling ... as long as Suharto is at the helm," a European bank dealer said.

"The market may be nervous over the possible appointment of Habibie as the next vice-president and whether he will become a sucessor to Suharto," one dealer said.

"Many political analysts say Habibie is less popular with the military and this could result in future conflicts or disagreements," he said.

Dealers said a tumble in the rupiah to 11,000 per dollar was threatening to drag other South East Asian currencies with it and making the US currency attractive as a safe haven again.

The rupiah's weakness caused jitters throughout the region's stock markets, with Hong Kong's Hang Seng index diving lower, reversing three successive sessions of gains.

It also sparked stop-loss selling and profit-taking in Singapore, where one dealer said: "People have been expecting the rupiah to weaken, but they still got a jolt when it fell so sharply."

Share prices in Korea closed sharply down, with the key KOSPI index suffering a 5% loss on worries about Indonesia's financial and economic instability.

Australian stocks gave up all their earlier gains to close lower as Asian shares began slipping.
 

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