* Indonesian markets fall as hotel blasts kill 9, injure many
* Attacks not seen damaging longer-term investor bullishness
* Investor view may change if attacks escalate
* Analysts say economic fundamentals look solid for now (Adds analyst quotes, updates market levels)
By Kevin Yao
SINGAPORE, July 17 (Reuters) - Indonesian stocks and the rupiah currency fell on Friday after explosions at two Jakarta hotels killed 9 people, denting some of the optimism built after last week's decisive presidential election.
Analysts said the attacks may hurt investor confidence in the short-run, but would not change a bullish longer-term view on the country unless they signalled a fresh wave of chaos like that which surrounded leader Suharto's downfall in the late 1990s.
"I would say it damages foreign investor confidence since the attacks appear aimed at Westerners, but not shatters it, so long as there is no further violence for some time," said Sean Callow, a currency strategist at Westpac in Sydney.
Indonesian markets have been among the best in Asia this year on hopes that a re-election of President Susilo Bambang Yudhoyono would quicken reforms in Southeast Asia's largest economy.
Stocks <.JKSE> fell as much as 2.7 percent after the attacks on the Ritz-Carlton and the Marriott, which was badly damaged by a car bomb attack in 2003. Both are in Jakarta's business district and popular with visiting foreign businessmen.
The index later pared losses and closed down 0.6 percent.
The rupiah
The dead included at least one foreigner, and 42 people were injured. A third blast in north Jakarta killed 2. [ID:nSP462178]
Yudhoyono told a news conference the bombings were the act of a terrorist group and said they would harm the economy.
Indonesia has not seen a major bomb blast for several years, underscoring progress made in tackling security threats from militant Muslims, which has brought a greater sense of stability and a corresponding jump in foreign investment.
Moody's recently raised its outlook on Indonesia's Ba3 sovereign rating to positive, citing its strong growth prospects based on domestic demand and "effective" economic policies.
Though growth is seen cooling to 3-4 percent this year, it has avoided the worst of the global economic crisis, which has pushed some of its richer Asian neighbours into recession.
WON'T ECLIPSE SOLID FUNDAMENTALS
The attacks came as Indonesia sold 35 billion yen ($374 million) in Samurai bonds for the first time, into markets still skittish about credit risks. A source close to the deal said the blasts had little impact on the sale. [T315595]
Tim Condon, head of Asia research at ING Bank, likened Indonesia to South Korea, whose markets are occasionally roiled by sabre-rattling from North Korea only to stabilise soon after.
"Typically it causes a short spike in selling pressure -- but the operative word is short. Indonesia is vulnerable and the attacks are negative but people know these are impossible to predict and they are part of the economic landscape. It doesn't totally eclipse all of the other investor positives -- the economic fundamentals and the political fundamentals."
John Teja, head of equities sales at Ciptadana Securities, noted the recovery period for Indonesian markets from such attacks has been getting shorter since the country's first major bombing in Bali in 2002, which shattered its tourism industry.
On the first trading day after the Bali bombing that killed 202 people, Indonesian stocks plunged almost 10 percent.
Daphne Roth, head of Asian equity research at ABN AMRO Private Bank, said she had a neutral view on Indonesia that had been growing more positive, but would avoid investing there if the attacks on Friday turned out to be a serious threat.
"It appears to be a one-off event at the moment. I actually
told my clients to start accumulating if there is panic selling
as the window of opportunity would close quickly," she said,
noting she was positive on commodities stocks and firms such as
Bank Mandiri
But Kevin O'Rourke, political risk analyst at Reformasi Weekly, said the attacks would badly damage investor confidence.
"The attacks are devastating for the image of security that Indonesia has built up painstakingly over the past four years.
"The attack is particularly severe for investor confidence because it took place despite strenuous counter-terrorist efforts by the government and has affected the hotels that are seen to be among the most secure in Jakarta and also either killed or wounded numerous prominent expatriate businesspeople."
The cost of protecting debt from Indonesia
The rupiah remains Asia's best performing currency this year with a gain of 8 percent, while stocks are up over 50 percent. Investors had been expected further gains after Yudhoyono's re-election spurred optimism about stronger economic growth.
* For more stories on the bomb attacks in Indonesia, click on [ID-RTRS-VIO-LEN] (Additional reporting by Kevin Plumberg and Umesh Desai in HONG KONG and Saeed Azhar and Harry Suhartono in SINGAPORE; Editing by Neil Fullick)