Jennifer Chen, Singapore – The Indonesian rupiah fell past 10,000 to the dollar for the first time since July 31 on Tuesday, trampled in a corporate rush to buy dollars.

The rupiah was pushed as low as 10,120, a drop of 2.4 percent from Monday's late 9,865, in part on market concerns that festering anti-American sentiment within the country's minority extremist Muslim population could scare away foreign investment.

The speed of the fall drew the attention of Bank Indonesia which stepped in to try and rescue the flailing currency, though the central bank only managed to steady it at 10,110/160. Volumes in the market were thin, which exaggerated the rupiah's move. One foreign bank dealer estimated total turnover in the market at less than $200 million, adding that volume had been steadily declining in the past few sessions.

Dealers said local and foreign corporates have been snapping up the dollar as they warily watch recent rallies in Indonesia by fringe Muslim extremist groups. These groups, which are a tiny minority in the predominately Muslim country, have been threatening to take action against foreigners if the United States retaliates against Afghanistan's Taliban for the September 11 attacks.

While the rallies have been small and the government has pledged to ensure the security of foreigners living in the country, dealers said there were worries they could give foreign investors another excuse to avoid Indonesia, just two months after a peaceful transition of power. "If the investors who are already here are worried about their security, then why would new investors want to come to this country?" said a European bank dealer.

Honeymoon over

The rupiah's recent falls also flagged the end of the honeymoon period for President Megawati Sukarnoputri's two-month old government. After Megawati came to power in late July, the currency rose by as much as 25 percent. Analysts said the September 11 attacks hastened the end of that honeymoon as the government tries to balance support for the United States with religious sensitivities at home.

Though the rallies have been held by a definite minority, Megawati can ill-afford any threat that could rent apart her coalition government and prise her grip on power. "This is a real test for the government ... we know Megawati is leading a coalition government and part of it is supported by Muslim parties," Syetarn Hansakul, regional economist at West LB in Singapore, told Reuters Television.

While Indonesia has been under pressure to fully back the US-led effort against terrorism, Megawati has been careful not to appear to be giving too much support – despite US President George W. Bush's promise of aid.

"Our stance over terrorism is very clear: we condemned the terrorist attacks in the States," Indonesia's Foreign Minister Hasan Wirayuda told reporters recently. "Regarding the US response, the government of Indonesia, through Mrs. Megawati, has asked President Bush to pay attention to the feelings of the Islamic world as well as not mixing up terrorism and Islam," he said.