* Still $11 billion of speculative money in Taiwan - c.bank
* C.bank will maintain forex order to curb speculation
* Watching economy, inflation on interest rate decision (Adds details, quotes)
By Lee Chyen Yee
TAIPEI, Nov 19 (Reuters) - Taiwan hopes an estimated $11 billion in speculative hot money that has flooded into the island will fall in the near future, as Asia central banks increasingly worry about brisk fund inflows into their local asset markets.
Even though some foreign funds have left Taiwan, Central Bank Governor Perng Fai-nan said on Thursday there was still a substantial amount of hot money in the island's financial markets and said it was ready to curb speculation to ensure orderly trade in its currency.
Perng's comments come over a week after Taiwan imposed capital controls by banning foreign funds from investing in time deposits, a move that appeared to be aimed at curbing speculative bets that the Taiwan dollar would appreciate. [ID:nTP305449]
"We hope the level of (hot) money will fall further," Perng told legislators on Thursday.
The central bank would also monitor economic conditions and inflation for future decisions on interest rates, which are now at a record low, Perng told the parliament.
Brisk foreign fund inflows over the past month or so have
pushed the Taiwan dollar
Brazil and Peru have also acted recently to curb speculative inflows which they fear may create asset price bubbles or other distortions which could interfere with broader policy. [ID:nSPO42519]
Stronger currencies could also crimp exports of emerging countries by making their goods less competitive, hindering economic recoveries.
By 0722 GMT on Thursday, the Taiwan dollar had weakened to T$32.196 against the U.S. dollar.
Six-month on-deliverable forwards (NDFs) were quoted at -0.680/-0.620, compared with -0.740/-0.690 in the previous session, indicating that investors were expecting the Taiwan dollar to appreciate less than had been earlier expected.
"People started to panic a little and there was quite a lot of short-covering in the U.S. dollar in the offshore NDFs (non-deliverable forwards) and spot markets after Perng made those hot money comments," said a forex dealer in Taipei.
CURBING "HOT MONEY"
In October, the central bank said foreign investors had parked about T$500 billion in Taiwan dollar accounts, with T$400 billion of the funds not in active investments.
Perng said on Thursday that about T$350 billion ($11 billion) was still in Taiwan, with an estimated T$120 billion to T$150 billion of that believed to be invested in the stock market.
Under central bank regulations, foreign institutions can only leave Taiwan dollars in bank accounts for a limited amount of time and need to invest the money in financial instruments, such as stocks and bonds.
Taiwan's central bank keeps the Taiwan dollar in a managed float and regularly buys and sells U.S. dollars to prevent huge fluctuations.
It has been guiding the Taiwan dollar to ensure that the currency only firmed gradually to help exporters, a key driver of the $390 billion economy. As a result, the currency has only gained about 2 percent this year on the U.S. dollar.
"The recent rise in the Taiwan dollar is merely reflecting the global trend," Perng said. "If there are irregularities in the market due to unusual circumstances, we will maintain order."
Asked by a legislator whether a financial memorandum of understanding signed between Taiwan and China will cause the Taiwan dollar to strengthen past T$32 in coming sessions, Perng said it would be unlikely.
Besides watching the Taiwan dollar closely, the central bank has also kept interest rates at a record low to help aid an economic recovery. But analysts widely expect it to start raising rates in the second or third quarter of next year once the economy is back on solid footing.
During the parliament session, Perng said that even though housing prices have been rising, it was only in certain parts of Taiwan, indicating that there was little cause of worry that bubbles were forming in the property market.
Singapore's central bank said on Thursday it was carefully watching property and asset prices while a Chinese central banker warned on Wednesday of the risk of asset bubbles emerging. (Additional reporting by Roger Tung; Editing by Kim Coghill)