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KUALA LUMPUR - Malaysian stocks sank 3.0 percent at midday Thursday after a 40 percent fuel price increase that is tipped to crimp economic growth and drive inflation as high as 5.0 percent this year.
The Kuala Lumpur Composite Index fell 37.81 points to 1,215.31 by mid-session with losses across all sectors on the bourse.
"The hike in fuel prices and planned hike in electricity tariffs point to higher inflation and potential erosion in corporate earnings," a dealer told Dow Jones Newswires.
He said the upward revision "was not entirely unexpected" but that the extent of the hike was a surprise.
Palm oil producers, who will be hit by a new windfall tax under the subsidy reforms, were among the decliners. IOI Corp was down 4.1 percent at 7.00 ringgit and Sime Darby fell 3.3 percent to 8.80 ringgit.
Prime Minister Abdullah Ahmad Badawi said Wednesday that economic growth, previously predicted at 5.0-6.0 percent this year, would now likely come in at 5.0 percent.
Inflation, running at 3.0 in April, could rise as high as 5.0 percent, he said.
Central bank governor Zeti Akhtar Aziz on Thursday confirmed the 5.0 percent economic growth forecast, and said inflation would rise to 5.0 percent year-on-year in June and average 4.2 percent over 2008.
However, she said there was no need yet for an interest rate increase. -AFP/ir
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