Indonesia's rupiah fell the most in more than two months on concern emerging-market central banks will follow Brazil's example in imposing a tax on overseas investment to temper currency gains.

Brazil this week imposed a 2 percent tax on foreign purchases of bonds and stocks to curb the real's appreciation, while an aide to French President Nicolas Sarkozy said yesterday that a drop in the dollar to $1.50 per euro would be "a disaster" for Europe.

A decline in Asian stocks also eroded demand for the region's currencies and supported the greenback.

"The currency comments and Brazil's move to curb the real's appreciation by imposing taxes on foreigners have made investors more cautious on emerging currencies as they fear other central banks could follow this path," said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France's Credit Agricole SA. "Since the rupiah is usually correlated with foreign investors' risk appetite, the currency has been dragged along with the rest."

The rupiah slumped 0.8 percent to 9,474 per dollar as of 9:51 a.m. in Jakarta, according to data compiled by Bloomberg. It was the biggest drop since Aug. 19.

Sarkozy's counselor, Henri Guaino, said yesterday that the US is "flooding the world" with dollars and that the currency's weakness may become "unbearable."

Cap losses

"Bank Indonesia may come in to cap the rupiah's losses around 9,500," said Joanna Tan, a regional economist at Forecast Singapore Pte. "The central bank is protecting both sides of the market as they want a stable currency." Central banks intervene by buying or selling currencies to influence exchange rates.

The rupiah reached 9,280 on Oct. 15, the strongest level since September 2008. The currency has gained 15 percent this year, Asia's best performance.

The currency's losses today are "marginal," Barbe said, adding that the appreciation trend may resume as the rupiah has fallen to "attractive levels."