* Singapore eases policy by moving currency band lower
* Effectively devalues currency by 1.5-2 pct --economists
* Singapore dollar strengthens on view easing was modest
* Singapore expects economy to shrink 6-9 pct this year
By Neil Chatterjee and Vidya Ranganathan
Singapore, April 14 (Reuters) - Singapore's central bank devalued its currency less aggressively than expected in a monetary policy review on Tuesday, signalling growing confidence that the global economy was bottoming out.
The Monetary Authority of Singapore repeated what it had done in previous downturns in 2002 and 2003 by shifting the centre of the secret trade-weighted band for the Singapore dollar down to the existing level of the exchange rate basket, effectively a devaluation.
Based on their estimates of the policy band the Singapore dollar is managed in, economists said the currency might have been devalued by 1.5 to 2 percent.
Coming alongside news of a 20 percent quarterly contraction in the economy between January and March, the policy easing appeared inadequate to most analysts. The Singapore dollar rallied on the news.
JPMorgan Chase strategist Claudio Piron said the Monetary Authority of Singapore had been conservative. "There had been some expectation that the re-centring would be as much as a 400 basis points depreciation."
Others pointed to subtle hints of optimism in the central bank's statement, such as the allusions to Singapore's "sound fundamentals", and references to a pick up in leading indicators and improved consumption in the United States.
"The statement was somewhat optimistic with the usual dose of cautiousness," said Emmanual Ng, strategist at OCBC Bank.
Central banks elsewhere in Asia, notably South Korea, New Zealand and Taiwan, have also recently paused in their rate-cut sprees, citing symptoms of a turnaround in global markets.
Other data on Tuesday meanwhile suggested Singapore's open economy -- exports including re-exports are double the total economic output -- could be nearing a trough.
Non-oil exports (NODX) fell 17 percent from a year earlier in March after a record 35 percent plunge in January and a 24 percent fall in February. Shipments to China jumped 14 percent in March.
"Although we are seeing some faint heartbeats in the Singapore economy with better-than-expected March NODX numbers, we have not seen the bottom yet," said Song Seng Wun, economist at Malaysian bank CIMB in Singapore.
"With inflation easing and external demand fragile, the shift in policy remains appropriate."
KEEPING RATES LOW
The Monetary Authority of Singapore sets policy by managing the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates.
The bank said the economy is likely to remain below its potential growth rate until a decisive recovery in exports.
Most economists had reckoned that devaluing the currency had been the Singapore's best option for the trade-dependent economy well into its deepest-ever recession, delivering some currency weakness while preventing expectations of a steady depreciation..
Other options such as gradually steering the currency lower or widening the width of the policy band would have stoked speculative selling of the currency, thereby pushing yields higher.
"The one-off recentring is the least ambiguous way of loosening foreign exchange policy without encouraging market expectations of undue weakening of the Singapore dollar," said OCBC's Ng.
"Other options would have introduced too much uncertainty in terms of how wide would be the new band, what kind of slope, plus it would have opened up a whole can of worms about competitive devaluation etc."
Tuesday's monetary easing came as Singapore's economy contracted a record 11.5 percent from a year earlier in the first quarter of 2009, more than a market median forecast of an 8.8 percent slump. The government expects the economy to shrink 6-9 percent this year.
"Given all these horrendous numbers, this policy change is not a big surprise. It is reflecting the free fall in external demand," said CIMB's Song.
The Singapore dollar, which has been emerging Asia's second-worst performing currency this year, strengthened to a two-month high of 1.497 against the U.S. dollar, from 1.515 before the announcement, and was trading at 1.5005 by 0600 GMT.
Singapore has to tread a fine line between allowing its currency to weaken to help exporters while avoiding giving its neighbours the impression that it is seeking to make its currency more competitive in export markets. Vietnam has depreciated its dong, while central banks in Thailand and Taiwan seem to be tolerating weakness in their currencies.
Singapore eased policy at its last policy review in October for the first time since 2003 to support an economy that was the first in Asia to fall into recession last year. (Additional reporting by Nopporn Wong-Anan, Saeed Azhar & Kevin Lim; Editing by Jan Dahinten)