The country’s financial markets are showing traction following combined central bank and banks’ efforts to provide liquidity in the system.

The Philippine Stock Exchange index rose by 3.82 percent yesterday clawing back last week’s massive losses of 12.8 percent. The PSEi is now back to 2,025.58 points, up 19 percent from Monday and Tuesday’s bloodbath. Trading reached P2.67 billion.

The peso also improved to 48.49 to the US dollar, up from Friday’s close of 48.94.

The credit default swap on the country’s bonds has also tightened from 8.5 percent last week to 4.65 percent yesterday. The swap rate however is still double the pre-crisis rate of over two percent.

Bangko Sentral ng Pilipinas Gov. Amando Tetangco, however said that since the depth and scope of the global financial turmoil remains unknown, monetary authorities will keep in place more measures and will not rely only on "tinkering with interest rates".

Tetangco is much concerned with the increasing spread in the country’s ROPs which reflects non-confidence on the country’s financial system.

"We realize that the spread movement is primarily due to risk aversion towards emerging markets, including the Philippines, nevertheless we needed to shore up confidence," Tetangco said.

Tetangco noted that dollar liquidity has been improved after "uneven distribution" has been evened out.

"I have repeatedly said there is ample liquidity in the system. We just need to address the somewhat uneven distribution," Tetangco said.

These measures include enhancing BSP’s peso repo facility and opening up a dollar repo facility.

The central bank chief also said that they have also maintained a presence in both the spot and swap forex markets.

Given the extraordinary problems faced by financial institutions, the BSP also last week released new guidelines geared at providing relief for banks.

The Monetary Board, in its latest meeting on Thursday, eased foreign currency denominated units (FCDUs) asset cover requirements and issued new guidelines on reclassification of financial assets.

"We have also been in close contact with the banks, and we are pleased with the gentlemen’s agreements that they announced recently related to their open forex positions and the greater scrutiny on client demands for forex," Tetangco said.

As central banks around the world lowered their key policy rates, Tetangco maintained that the BSP’s monetary policy stance "is appropriate at this time."

"With the global crisis and prospects of a marked slowdown in global economic growth for 2009, monetary policy will continue to be geared towards the achievement of price stability while exercising flexibility given the presence of significant shocks to the real sector," Tetangco said.

Chelsea Dipasupil, RCBC Securities, Inc., said the market appears to be welcoming the possibility that Barrack Obama would win the US election.," said Dipasupil.

Claire Quiray, Accord Capital Equities, Inc., analyst, said investors are likewise expecting the local central bank to cut on rates following the US Fed’s decision to cut its rate by 50 basis point. Quiray noted that the BSP recently said that the US cut gives them elbow room for a similar move.

Most actively traded Philippine Long Distance Telephone Co., (PLDT) was up P30 to P2,025.

Ayala Corp., was up P10 to P243.

Energy Development Corp., was up P0.20 to 3.15.

Manila Electric Co., was up P4 to P62.50.

Ayala Land, Inc., was up P0.70 to P6.60.

SM Investments Corp., was up P5 to P203.

Manila Water Corp., was up P1.75 to P14.

Meanwhile Asian currencies rose led by the volatile South Korean won, up nearly 3 percent from Friday’s domestic close, as the government said it would pump an extra $11 billion into the economy next year to try to divert a punishing downturn.

The Indonesian rupiah rose about 1.6 percent to 10,800 per dollar, as local shares jumped almost 8.7 percent.

The Singapore dollar rose almost 0.8 percent to S$1.4707 per US dollar as surging local stocks prodded investors to sell US dollars to stop losses.

Meanwhile, the e peso rose as far as 48.67 per dollar, up about 0.6 percent from Friday’s close.

"I think the peso/dollar takes it lead from the equity market," said a trader in Manila..