MANILA, July 13: Philippine shares, which surged after Friday's de facto peso devaluation, are likely to chart a more modest course early this week until developments in the currency market become clearer, analysts said.But once the peso calms, then the stock market should forge ahead, they said.

"The Central Bank's decision was like manna from heaven for the stock market. It was a coup de grace and Friday seemed to be won by speculators," said Saturnino Mejia, research head of Guoco Securities.

The Central Bank last Friday announced it was allowing the peso to trade in a wider range against the U.S. Dollar after days of denials, and stood by as the currency tumbled 11.5 percent in minutes.

The stock market main index closed 7.57 percent higher at 2,701.14 points, posting the biggest single-day rise in percentage terms in nearly seven years.

"When the Central Bank decided not to defend the peso, expectations were that interest rates would come down and if they do this week, then we will see no let up in the market's up-tick. If not, then that may solicit profit-taking," said Raul Zamora, head of institutional sales at PCCI Securities.

A resistance level of 2,850 may be tested if the rise is sustained, Zamora said. Export-oriented and dollar-earning companies such as International Container Terminal Services Inc, Ionics Circuits Inc and Solid Group Inc are likely to continue hogging the limelight.

But some traders said the market should look closely at whether gains by companies with dollar-denominated revenues like Philippine Long Distance Telephone Co and San Miguel Corp will be offset by their dollar-denominated loans.

"The peso-dollar rate will fluctuate widely. It's going to be choppy so we should look for companies with strong balance sheets, not much debt and with excess cash," said Noel Reyes, vice-president at Anscor-Hagedorn Securities.

"At 2,700 points, we are back to normal, to pre-speculation levels. With the Central Bank's announcement, the talk of foreign exchange risk has been eliminated and there's no sense for investors to hold back," said Francisco Trinidad, research head at DBS Securities Phils.

Trinidad said the main index will likely move within 2,700 to 2,800 point range in the short-term. Release of second quarter corporate earnings will also be a deciding factor. Anscor-Hagedorn Securities expects the market to test a 2,900 to 3,000 resistance within the month.

"Foreigners should now look at the Philippines since they see a cheaper currency and stocks at bargain levels. It's a double buy for them," said Reyes.

Analysts warned that inflation may be driven up, providing for a less cheerful environment for stocks to flourish. Others quashed those fears, saying higher exports will bode well for the general economy. "In the long-run, it does not matter. In the 1940's, it was two pesos for every dollar, and recently it was 26 pesos to a dollar, and we are still alive. Everything is going to adjust," Reyes said.

"No guts, no glory... Investors in the stage of denial will have to accept later to buy in this market at a much higher price," said one fund manager.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.