May 22, 2017 / 8:15 AM / 3 months ago

UPDATE 1-Taiwan dollar rallies as foreigners snap up local shares

(Recasts lede for Taiwan dollar)

TAIPEI, May 22 (Reuters) - The Taiwan dollar posted its strongest gains against the U.S. dollar in more than a month on Monday, underpinned by foreign buying of local shares and in line with strength in regional currencies.

Traders in Taipei said some of the gains were spurred by a media report that the island's central bank was changing its currency policy and moving to a managed float for the currency.

An official at Taiwan's central bank denied that report.

"This speculation is wrong, our central bank's exchange rate policy has not changed. It has always been a floating exchange rate management," a central bank official who spoke on the condition of anonymity told Reuters.

The Taiwan dollar was trading at T$30.050 per U.S. dollar in late trade, up around half a percent.

It gapped higher at the open and rose to a high of T$29.965 in early trade, compared with Friday's close of T$30.210.

A currency trader in Hong Kong said the market had reacted to the media report about the currency becoming a managed float, but it didn't make sense because that is the status quo.

Taiwan's central bank has maintained that supply and demand dictate the local dollar's movements, but that it will maintain order in the market if excessive volatility is not beneficial to economic and financial stability.

Taiwan shares closed up 0.5 percent at 9,997.26 points, fueled by net purchases in shares by foreign investors. The main index has gained about 8 percent so far this year in local dollar terms.

The currency also has strengthened almost 8 percent so far this year, trailing only the South Korean won in major markets.

Taiwan's central bank has refrained from weakening the currency through market intervention, as it works to get the island off a U.S. watch list of possible currency manipulators.

Reporting by Faith Hung; Additional reporting by Liang-sa Loh and J.R. Wu in Taipei, Ewen Chew in Singapore; Editing by Kim Coghill

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