Oct. 1 (Bloomberg) -- The Taiwan dollar rose to its highest level in almost a year on speculation closer trade ties with China, the world’s third-biggest economy, will boost exports and spur overseas demand for the island’s shares. Bonds advanced. Taiwan and China will probably sign memorandums of understanding this month regarding cross-border investments and plan to hold talks in December on a proposed trade deal, the Commercial Times reported today. Overseas investors bought $11.8 billion more Taiwan shares than they sold this year through yesterday, helping lift the Taiex stock index 64 percent. “The MOU news is boosting the markets,” said Ernest Chiang, who manages $62 million of assets for IBT Asset Management Co. in Taipei. “With the U.S. dollar weakness, some speculative money is flowing in, and that is reflected in the appreciation of the Taiwan dollar.” The local dollar rose 0.2 percent to NT$32.13 against its U.S. counterpart as of 12 p.m. local time, according to Taipei Forex Inc. It earlier reached a one-year high of NT$32.04 before paring gains on speculation the central bank was intervening to weaken the currency, which climbed 2.2 percent last month. The Central Bank of the Republic of China (Taiwan) bought U.S. dollars this morning to help stem gains in the local dollar, according to three traders, who asked not to be identified. The bank said yesterday that it would “step in to maintain order” if excessive volatility is caused by “seasonal or irregular factors.” Inflows from abroad are putting “appreciation pressure” on the local dollar, central bank Governor Perng Fai-nan told lawmakers yesterday. Bonds Rise The Economic Cooperation Framework Agreement, a proposed trade agreement that would reduce tariffs for Taiwan-made goods, will probably be included in December talks between the two governments, the Taipei-based Commercial Times reported today. China banks will set up offices in Taiwan after an eight-day holiday that starts today, the paper reported. Taiwan’s 10-year government bonds climbed, driving yields to the lowest level this year. “The market is flush with funds because of the Taiwan dollar’s appreciation,” said Tommy Huang, a bond trader at Taiwan International Securities Corp. in Taipei. “Some of the money has gone to bonds.” The yield on the 1.375 percent bond maturing September 2019 declined two basis points to 1.37 percent in Taipei, according to Gretai Securities Market, Taiwan’s biggest exchange for bonds. Its price climbed 0.144, or NT$144 per NT$100,000 face amount, to 100.0068. A basis point is 0.01 percentage point. To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net

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