Vietnam Money-Dollar demand eases as trade gap drops

HANOI, Aug 4 (Reuters) - Dollar demand has eased slightly in Vietnam in the past week, underlined by the absence of commercial bank demand to buy the hard currency from the central bank, following signs that the country's trade deficit is narrowing.

The country's trade account has been under massive pressure this year as the price of raw materials soared. Inflation galloped higher to its highest levels in 17 years.

"During the week the foreign currency supply and demand are relatively stable," the State Bank of Vietnam, the central bank, said in its weekly report. "Commercial banks did not have demand to buy foreign currencies from the State Bank," it said.

The dollar fell slightly to 16,750/16,770 dong last Friday on the black markets, the report said, compared with 16,740/16,790 dong VND= on interbank markets.

On Monday, the dong edged up to 16,710/16,780 per dollar on black markets, a gain of 17 percent from as low as 19,600 dong per dollar in mid-June.

Vietnam's trade gap has shown signs of narrowing in recent months. It came in at $800 million in July, larger than June's $740 million, but less than half the gap seen in May of $1.9 billion.

Still, reflecting the pressure on trade this year, January-to-July's accumulated deficit was double the same period last year at $15 billion, government data showed.

The Planning and Investment Ministry also forecast last week that the annual trade deficit this year would widen to between $19 billion and $20 billion from a 2007 gap of $12.4 billion.

Vietnam's dollar supply this year has been partly underpinned by foreign investment flowing into the country.