By MAX ESTAYO and ALBERT CASTRO

Investors yesterday sold down the peso and stocks yesterday after a three-day holiday, worried about the big jump in oil prices over the weekend and soaring inflation.

Philippine Stock Exchange index lost close to 100 points, a 20-month low, down by 3.4 percent from Friday and the peso fell to 44.45 to the US dollar, down 0.7 percent from Friday’s close and its weakest level since October.

The peso closed at 44.425 to the dollar against Friday’s 44.135. It opened at 44.20, hit a low of 44.45 and a high of 44.20.

Total turnover at the Philippine Dealing System amounted to $417.5 million, up from $277.5 million Friday. Traders said the peso is up for further weakness in the days ahead, seeing at it 44.60-44.36.

"The market is reacting to oil prices, which would mean higher exchange rate, so there’s volatility," Jonas Ravelas, market strategist of Banco de Oro Universal Bank, said.

Oil prices have eased to the $134 per barrel levels from $139 Friday, although supply remains tight, providing no relief to speculations the prices would go up further.

Foreign investors, wanting to cut risks on exposure to emerging markets, dumped locals stocks yesterday, resulting in a 3.4-percent decline of the Philippine Stock Exchange Index.

Traders said investors were at the same time spooked of prospects domestic inflation surging to double-digit levels after a 9.6-percent growth in May.

Bangko Sentral ng Pilipinas governor Amando Tetangco said inflation may probably rise to 10-11 in the current or the next quarter before tapering off, due to the continued volatility in food and fuel prices. A higher inflation would cut off the gains of investors in their local investments.

"The market hasn’t seen the top of oil prices and this is providing uncertainty," Ravelas said.

Higher oil prices increase the country’s oil import bill, weakening the peso, while the resulting rise in domestic consumer prices will lift the inflation rate further.

The BSP last year relied on the strong peso to temper inflation to a 20-year low of 2.8 percent. After the increase in May, the year-to-date inflation stood at 6.9 percent, well above the BSP’s target of 3-5 percent.

Traders said the peso is up for recovery only in the fourth quarter when remittances peak and economic worries in the US shall have ebbed.

Ravelas said the peso is likely to end the year at 42, weaker than 41.10 last year.

The Philippine Stock Exchange index tanked 93.75 points to close at 2,645.95.

Losers overwhelmed gainers 95 to 8 with 42 stocks unchanged.

Trading turnover reached 1.54 billions shares worth P4.25 billion.

"The economy is struggling, and inflation is high," a trader said.

Most actively traded SM Investment Corp. was down P7.50 to P255.

Ayala Corp. was down P17.50 to P305.

Philippine Long Distance Telephone Co. was down P85 to P2, 435.

Globe Telecom, Inc. was down P35 to P1, 245.