Malaysia's ringgit touched the weakest level since May 2010 and government bonds declined after the Federal Reserve pressed ahead with stimulus cuts, damping demand for emerging-market assets.

The MSCI Asia Pacific Index of stocks dropped after the Fed said yesterday it will trim monthly bond purchases to US$65 billion, sticking to a plan for a gradual withdrawal from stimulus that has fueled fund flows to developing nations. Global investors held 29 per cent of Malaysian sovereign debt at the end of November, compared with 18 per cent in Thailand, official data show. The central bank kept its benchmark interest rate at 3 per cent yesterday to shield growth.

"People are turning cautious because of the Fed's resolve to continue to cut bond purchases," said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd in Singapore. "Asian economies with high foreign ownership of bonds such as Malaysia are vulnerable. Bank Negara's decision to hold its policy rate also didn't help."

The ringgit fell 0.3 per cent to 3.3466 per dollar as of 3.22pm in Kuala Lumpur, data compiled by Bloomberg show. It touched 3.3485 earlier, matching its January 27 low that was the weakest since May 2010, and has dropped 0.4 per cent this week and 2.1 per cent in January. Local markets will be shut for the Lunar New Year holiday tomorrow and on February 3.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 13 basis points, or 0.13 percentage point, to 7.81 per cent today. It gained 23 basis points from January 24.

Consumer prices rose 3.2 per cent in December from a year earlier, the most in two years, a report showed last week.

The yield on Malaysia's 3.26 per cent government bonds due March 2018 rose one basis point to 3.78 per cent, according to data compiled by Bloomberg. The rate climbed six basis points this week.-- Bloomberg