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Vietnam stocks tumble, lead decline in Asia on inflation concern

Vietnam's stocks tumbled, dragging the benchmark index down by the most in Asia, after government data showed inflation accelerated to a 29-month high in May.

The Ho Chi Minh City Stock Exchange's VN Index on Wednesday sank 4.1 percent to 385.91 as of 10:09 a.m. local time, heading for a 10th consecutive day of declines and the lowest close since May 14, 2009. Asia's worst-performing benchmark index this year has tumbled 26 percent from its 2011 high on Feb. 9, exceeding the 20 percent drop that marks a bear market for some investors.

The State Bank of Vietnam on May 17 boosted the repurchase rate for the sixth time this year to curb inflation. Prices rose 19.78 percent in May from a year earlier, compared with 17.51 percent in April, according to data released by the General Statistics Office in Hanoi yesterday. That's the quickest pace since December 2008.

"Inflation figures were higher than expected and people are afraid that the consumer price index gains may accelerate to more than 20 percent this year," said Nguyen Duy Phong, a Ho Chi Minh City-based analyst from ACB Securities Inc. "There are also rumors that the central bank may raise the reserve ratio, and that will hurt money inflows into the market."

Foreign investors have sold a net VND107.9 billion ($5.2 million) of Vietnamese shares since May 20, according to data from the Ho Chi Minh City Stock Exchange's website Tuesday. The three days of selling were the longest series since Dec. 2 to Dec. 6, the data show.

Economic growth

The economy grew 5.43 percent in the three months through March from a year earlier, slowing from a 7.34 percent pace in the previous quarter. Lending rates as high as 28 percent are hampering business, according to VinaCapital Investment Management Ltd., Vietnam's largest fund manager.

"Rising inflation expectations will keep the pressure on the central bank to tighten further," Prakriti Sofat, a Singapore-based economist at Barclays Capital, wrote in a note, predicting that the refinancing rate will rise by a further 100 basis points to 15 percent in "coming weeks."

Inflation will probably reach 22 percent to 23 percent by mid-year before easing "as policy tightening weighs on credit growth," Sofat wrote.