Feb. 18 (Bloomberg) -- Malaysia’s ringgit fell to a two-year low against the dollar on concern that a deepening global recession will stifle demand for riskier assets. Bonds declined.
    
The currency slid for a third day as stock benchmarks dropped across the region, dragging the MSCI Asia Pacific Index to its lowest level since November. U.S. shares tumbled yesterday as a gauge of New York manufacturing fell to an all-time low. German Finance Minister Peer Steinbrueck also said euro-region countries may be forced to bail out cash-strapped members of the 16-nation bloc amid the worst recession since World War II.
   
 “We are still in the middle of a global crisis and investors will likely wait for asset prices to cheapen,” said Nazudin Sarifuddin, head of treasury at Bank Pertanian Malaysia Bhd. in Kuala Lumpur. “Sentiment is playing a big part in the currency’s weakness.”
   
 The ringgit fell 0.3 percent to 3.6555 per dollar as of 11:43 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.6615, the weakest since November 2006, and taking this year’s decline to 5.6 percent.
   
Malaysia will revise its forecast for economic expansion of 3.5 percent this year, Deputy Prime Minister Najib Razak said in parliament yesterday. The government is set to unveil on March 10 a “bigger and more comprehensive” stimulus program than the 7 billion ringgit ($1.9 billion) unveiled in November, he said.
  
Non-deliverable forwards signal traders are betting the ringgit will weaken 0.7 percent from today’s spot rate to 3.6815 in three months, compared with expectations for 3.6710 yesterday. Forwards are contracts in which assets are bought and sold at current prices for delivery at a future specified date.

Three-year government bonds fell for a third day, lifting yields to the highest in a month, on speculation the central bank will refrain from lowering borrowing costs next week as the treasury prepares to sell more debt.
   
The yield on the 3.833 percent note maturing in September 2011 rose two basis points to 2.85 percent, according to Bursa Malaysia Bhd. The price dropped 0.05, or 50 sen per 1,000 ringgit face amount, to 102.45. A basis point is 0.01 percentage point.
   
“The market has scaled back rate-cut expectations for now, although we can’t rule out cuts at later meetings if the economy continues to deteriorate,” said Lim Shyang Fuh, head of treasury at ECM Libra Investment Bank Bhd. in Kuala Lumpur. “The government is likely going to finance its stimulus spending through bond sales, thus increasing  supply.”
    
Bank Negara Malaysia has “frontloaded” its policy action when it lowered the overnight rate to 2.5 percent from 3.25 percent on Jan. 21, Governor Zeti Akhtar Aziz said on Feb. 11. Policy makers next meet on Feb. 24 and April 29.
    
The government is scheduled to auction new bonds maturing in August 2012 later this month. The finance ministry has raised 11 billion ringgit from bond sales so far this year, versus 7 billion ringgit over the same period last year.