8:39 pm - Malaysian shares close sharply lower on renewed US economic worries -

UPDATE (adds analyst comment, share prices ) KUALA LUMPUR (Thomson Financial) - Malaysian shares closed sharply lower Friday on renewed concerns about the health of the US economy following the release of weak economic data there. The Dow Jones industrial average on Thursday dropped 1.2 percent after the Philadelphia Federal Reserve reported that regional manufacturing output shrank more than expected. In addition, the Conference Board said its gauge of future business activity dropped for the fourth month in a row in January. The local market was also weighed down by a series of negative developments in the corporate sector, including disappointing results from Maybank and MISC. The Kuala Lumpur Composite Index (KLCI) closed down 25.28 points or 1.8 percent at 1,369.48, off a low of 1,354.71. For the week, the KLCI was down 57.71 points or 4 percent. The FTSE Bursa Malaysia 30-large cap index dropped 153.21 points or 1.7 percent to 9,086.42 and the FTSE Bursa Malaysia second board index lost 99.66 points or 1.6 percent to 6,293.69. Decliners beat advancers 679 to 171, with 217 stocks unchanged and 288 stocks untraded. Trading volume was 904.6 million shares, valued at 2.17 billion ringgit. "The Conference Board data are reinforcing that the (US) economy is in recession as its index of leading economic indicators has now fallen 2.0 percent over the last six months, the biggest drop since early 2001," said analysts at Kenanga Investment Bank. The US economy is slowing dramatically in the first quarter as the index has declined for four straight months, it said. The Conference Board index is designed to forecast where the US economy is headed in the next three to six months. "If there is anyone (foreign investors) who has yet to sell and wants to sell, he or she will probably choose the markets that have not really fallen and are still in a profit position. Malaysia is one of those markets," said Choo Swee Kee, chief investment officer at TA Investment Management. The Malaysian market will remain skittish next week, he said. "At this point, it is very difficult to gauge in which direction the market will go as the market is very sensitive to news." Choo said he is not expecting the local bourse to stage a rally ahead of the general elections next month. "I think the market will be very quiet during the campaigning period, while the outlook for the market after the elections will depend on how the ruling party fared," he said. Malaysians will go to the polls on March 8 and candidates will start campaigning from next week. "For those who have already invested, they should hold on to their positions in blue-chips as these stocks will make a come back eventually. As for investors who are sitting on cash, now may be a good time to accumulate," said Choo. Investors will keep a close watch on the Malaysian central bank's decision on interest rates on Monday. Bank Negara, which has kept its overnight policy rate at 3.5 percent since April 2006, is unlikely to follow the US lead in cutting rates as inflation remains a major threat, said economists. The central bank will release 2007 GDP data on Wednesday, while the majority of Malaysian companies will announce earnings for the past year throughout next week. At the close, Gamuda extended losses after managing director Lin Yun Ling trimmed his stake in the construction company, fanning fears that the move may signal weakening operating conditions ahead. The stock slid 28 sen or 6.7 percent to 3.92 ringgit. MISC, the shipping arm of state oil company Petronas, lost 30 sen or 3.2 percent to 9.20 ringgit after it reported a 53 percent drop in third-quarter net profit. Maybank was down 10 sen or 1 percent at 9.50 ringgit. Malaysia's largest bank reported this week a 7.7 percent dip in its second-quarter net profit, hit by lower investment trading income. Bumiputra-Commerce, which controls Malaysia's second largest bank CIMB, declined 10 sen or 1 percent to 10.20 ringgit. The group's fourth-quarter net profit of 486 million ringgit was lower than expected, said James Ratnam, analyst at TA Securities, who has a "sell" rating on the bank. Plantation stocks were not spared in Friday's sell-off, with Sime Darby, the largest listed palm oil company in the world, falling 30 sen or 2.5 percent to 11.70 ringgit. IOI Corp, the second largest palm oil stock on the local bourse, shed 15 sen or 1.9 percent to 7.80 ringgit and Kuala Lumpur Kepong, which has interests in oil palm and rubber plantations, traded down 30 sen or 1.6 percent at 18.40 ringgit. Among other index heavyweights, national power company Tenaga dipped 20 sen or 2.2 percent to 9.05 ringgit and telecommunications giant Telekom Malaysia was down 10 sen or 0.9 percent at 11.10 ringgit. At the close, the Malaysian ringgit was quoted at 3.2170/2175 against the US dollar. Three-month interbank rates were quoted at 3.55/58 percent and the overnight rates were at 3.48/50 percent.