(AFP) - Malaysia's international reserves fell by US$1.5 billion in the second half of last month, from RM109.3 billion (US$28.7 billion) to RM103.3 billion, the central bank said today.

Bank Negara Malaysia said international reserves had been falling since May last year but added: "Whether there should be concern would depend on the underlying reasons..."

Last week Standard and Poor's cut the outlook on Malaysia's long-term foreign currency credit rating to stable from positive. It cited the government's "unusually high" fiscal deficit, greater political uncertainty and an unexpected decline in international reserves.

The central bank attributed the fall in the second half of March partly to a quarterly exchange rate revaluation of its reserves -which are held in several currencies - amid a rise in the dollar's value.

This resulted in a decline of US$900 million. Other factors were higher import payments and transfers and portfolio outflows, which accounted for US$600 million.

The reserves were still adequate to finance four months of imports and were almost six times the level of short-term foreign debt, it said in a statement.

Short-term portfolio outflows

The central bank said the decline in reserves in the second quarter of last year was dominated by short-term portfolio outflows.

"Subsequently the outflows reflected mainly higher overseas investment, repayment of external loans, payments for services and transfers as well as revaluation losses."

The central bank said overseas investments by Malaysians last year amounted to US$2 billion, and to an estimated US$200 million in the first quarter of this year.

The bank also stressed that the ringgit peg would not be altered despite currency declines in regional countries which are competing against Malaysia for export markets.

It said exchange rate stability was vital to a country whose trade volume is more than twice the size of its economy.

Stock market closed lower

The stock market closed 4.2 percent lower today, partly on continued speculation about a ringgit revaluation.

Prime Minister Mahathir Mohamad and Finance Minister Daim Zainuddin have said the government sees no need to re-peg the unit, which has been fixed at 3.80 to the dollar since September 1998.

"The ringgit currently continues to remain close to fair value and is consistent with the fundamentals of the economy," the bank said.

"The determination of the exchange rate should not be reactive to short-term developments in the international foreign exchange markets."