Jakarta – The Indonesian rupiah spiked to around 9,800 to the dollar on Thursday and the stock market gained 1.40 percent, welcoming Muslim politician Hamzah Haz as the country's new vice president.

Dealers said the United Development Party (PPP) chief was a safe choice in the predominantly Muslim nation and would be a healthy balance to President Megawati Sukarnoputri's nationalist views.

But former top security minister Susilo Bambang Yudhoyono, one of three candidates for the post, was the preferred choice, they added.

The frail currency strengthened to 9,750 per dollar, anticipating Haz's victory but later cooled to 9,850. By 0735 GMT it was quoted at 9,900/10,000. The composite Jakarta stock index hit a high of 453.839 points in the morning session. By 0735 GMT, it was up 0.06 percent at 447.915 points.

Some enthusiastic dealers were eyeing 500 points as a near-term target. "It's time to buy now – the market is going to react more positively and I think to break through through the 500 mark won't be difficult," said Suhendra Setiadi, from leading retail brokerage Trimegah Securities. "Hamzah Haz can help Megawati's relations with the Islamic groups," he added.

The country's financial markets have been on an adrenalin rush since Megawati was elected the country's fifth president by the top legislature on Monday.

Her rise is expected to end months of uncertainty under Abdurrahman Wahid whose erratic ways caused constant pain for the markets, still struggling to recover from the economic crisis of the late 1990s.

But the honeymoon period could come to an abrupt end if her cabinet line up does not impress or her leadership falters. "It's [Haz's appointment] positive for the market but I think serious foreign investors will still wait to see what Megawati does next," said Michael Chambers, HSBC Securities' head of sales.

"[But] I'm still optimistic about the market. It is still very cheap in terms of valuation and of course all the gains won't happen in one day." Politicians and analysts are urging the taciturn Megawati to announce a cabinet quickly and begin the mammoth job of dragging the world's fourth most populous nation out of crisis.