Analysts say much of the foreign money flowing into markets in Thailand, South Korea and the Philippines is driven by genuine investor demand and optimism about economic recovery prospects.

But the accompanying currency appreciations have raised official concern about a potential loss of export competitiveness.

"They have to decide whether they want to have the inflows, the improved confidence," said Andrew Dermot Fung, regional treasury economist at Standard Chartered in Singapore.

"This is not hot money. Nobody is going to put money into these economies on a short-term basis thinking they'll get bang for their buck."

"These are the it's driving their exchange rates up," he said.

As exporters fight to repair tattered balance sheets and get cash flow going in the wake of the unprecedented 1997 Asian crisis, the new-found strength of their domestic currencies is causing growing strain.

While the cost of imported components shrinks, this is more than offset by the fact that the dollars, euros or sterling that exporters receive for their goods are worth less in terms of the local currency.

As a result, several Asian central banks have shown disapproval of recent gains in their currencies. "The bias is clearly against further currency strength and sporadically there's evidence of intervention," said Ron Leven, head of Asian local markets research at JP Morgan.

The Bank of Korea is believed to have repeatedly bought dollars for won through state-run banks after the won reached a peak of 1,148 per dollar last week, its highest level since December 1997.

But most analysts expect the central bank to achieve little more than slowing the rise as foreign funds continue to flood the Seoul stock market, buoyed by corporate restructuring efforts and hopes of a credit ratings upgrade.

The Thai baht, which has gained some 12 per cent against the dollar since the yen began its reversal last October, failed last week to climb convincingly above 36.00 per dollar, where the central bank was believed to have bought dollars.

The Philippine central bank cut key overnight rates on Tuesday, with analysts believing it wanted to cap the 16 per cent rally in the peso seen since early October.

Indonesia is on the other side of the coin, with the central bank having to sell dollars to prop up the rupiah, which fell out of bed on Wednesday amid growing political and economic anxiety.

And Singapore seems to be standing back as its currency bucks the regional trend due to soft interest rates and because local companies have had to buy dollars lately to pay for a series of regional asset acquisitions they made last year.

Given that Asia's much-touted export-led recovery never materialised -- because many companies were unable to afford the necessary component imports -- analysts question whether recent concerns about a loss of competitiveness are indeed justified.

"The idea that Asia is going to have an export-led recovery is just nonsense. There's not that much the world can absorb in terms of imports and the net value-added stimulus on the economy is not that great," said JP Morgan's Leven.

"What Asia is really suffering from is a domestic demand problem and a stronger currency makes locals richer and more prone to spend," he said.

Leven said there was likely to be persistent upward pressure on regional currencies, given that interest rates remained high in global terms and current account surpluses continued to grow.

But with no clear consensus on the sustainability of the yen's rise and a long road ahead to economic recovery for the region, analysts said central banks were likely to remain leery of excessive strength in their currencies.

And despite signs that inflationary pessures are subsiding around the region, most central banks cannot really afford to slash interest rates.

"The main concern is that the yen is not on a sustainable (upward) trend. And they're worried that if they cut interest rates aggressively now, and the yen turns around, it could mean having to hike rates again," said Chia Woon Khien, head of Asian research at SE Banken.