Vietnam dong heads south close to four-month low

HANOI, May 30 (Reuters) - Vietnam's central bank allowed the dong to fall against the dollar to the lowest level in nearly four months after Fitch Ratings cut the country's sovereign rating outlook to negative from stable.

The State Bank of Vietnam, or the central bank, set the official exchange rate at 16,086 dong per dollar, the lowest since Feb. 4 when it was 16,087 dong per dollar.

On the onshore foreign exchange markets banks can trade the currencies within a band of +/- 1 percent of the official rate daily, meaning the spot rate VND= would range between 15,925 dong to 16,248 dong per dollar for Friday.

On non-deliverable forwards PNDG, the dong dropped slightly to 21,200/22,200 dong per dollar on one-year term at 0038 GMT, from 21,050/22,050 dong per dollar on Thursday, or a devaluation of 30 percent, compared with 33 percent on Wednesday.

Fitch Ratings lowered the outlook on Vietnam's BB-minus sovereign rating to negative from stable on Thursday as double-digit inflation, a yawning trade deficit and banking woes strain the developing market economy [ID:nBKK155062].

Vietnam's annual inflation accelerated to 25.2 percent in May from 21.4 percent in April, its seventh consecutive double-digit reading and one of the highest in Asia [ID:nBKK139303].

The central bank has said it pursues a flexible exchange rate management but the communist government has said that during 2008 it would allow only a 2 percent annual appreciation or depreciation of the dong. (Reporting by Ho Binh Minh; Editing by Louise Heavens)