* Paper reports Taiwan may bar foreigners from buying bonds
* C.bank, regulator say have not held talks on issue
* Move would be latest crackdown on forex speculation
* Yield on benchmark 10-yr govt bond falls despite report
(Adds detals, background)
TAIPEI, Jan 7 (Reuters) - Taiwan is considering banning foreign funds from buying bonds, a local newspaper reported on Thursday, as regulators and the central bank ratchet up pressure on currency speculation they fear could damage the economy.
The move was aimed at stopping foreign investors from using the bond market to speculate on the Taiwan dollar the Chinese-language Commercial Times reported on Thursday, citing a central bank official.
"The central bank does not welcome that," Spencer Lin, head of the central bank's foreign exchange bureau, was quoted as saying, when asked if foreign funds could invest in bonds.
Officials from both the Financial Supervisory Commission and Taiwan's central bank said they had no knowledge of any such talks, and were checking the newspaper report.
Taiwan has imposed a series of capital controls and other measures since November in a bid to control flows of speculative "hot money" flooding into the island as investors bet that its currency will appreciate.
At the same time, policymakers have tried to channel those investment flows into the stock market instead, helping the local market to a 78 percent gain last year.
On Tuesday, the central bank said it had passed the names of foreign investors with excessive deposits in the local currency to the financial regulator, and said those sending money to Taiwan had to buy stocks within a week.
Other emerging economies from Russia to Brazil have also imposed controls in recent months to curb speculative flows which they fear could create potentially destructive bubbles in property and stock markets.
Hot money flows also threaten to drive up local currencies, which could make exports less competitive and threaten still nascent economic recoveries. Taiwan, like many of its Asian neighbours, is heavily reliant on exports to drive economic growth.
Investors are bullish on Taiwan and its ties with China. Economic growth is expected to accelerate to 4.8 percent in 2010 as global demand rises. The Taiwan dollar has risen about 11 percent against the U.S. dollar since March, though heavy intervention by the central bank late in the year kept its gain for 2009 as a whole to just 2.6 percent.
Taiwan's foreign exchange reserves swelled by $30.6 billion in the second half of 2009 to a record $348.2 billion, indicating the central bank was ramping up its purchases of U.S. dollars late in the year and selling its own currency to stem the currency's rise. That compared to a $25.9 billion reserve rise in the first half.
The local dollar has risen a further 0.6 percent this week, despite signs that policymakers are growing increasingly alarmed.
In the latest Reuters poll, analysts expected the Taiwan dollar to appreciate 5 percent in 2010.
Despite the newspaper report about a possible ban on foreign buying of local bonds, Taiwan bond prices edged higher. The yield on Taiwan's benchmark 10-year government bond was down 2.03 basis points at 0.9890 percent.
The newspaper quoted Lin as saying that yields on Taiwan bonds were lower than those on U.S. dollar-dominated bonds, so there was little reason for foreign investors to put their money into Taiwan bonds anyway. (Reporting by Kelvin Soh; Editing by Chris Lewis & Kim Coghill)