DUBAI, Nov 3 (Reuters) - Egypt's blue-chip stock index soared early on Thursday after the central bank said it was floating the Egyptian pound in an effort to end a hard-currency shortage that has plagued the economy for several years.
The EGX 30 index jumped 8.3 percent with many stocks rising their 10 percent daily limits. The broader EGX 100 gained only 3.6 percent, however.
The central bank said it had floated the pound and raised interest rates by 300 basis points. Bankers told Reuters they had been informed that the central bank would set an initial guidance rate of EGP 13 to the dollar at a sale at 1300 local time (1100 GMT), compared to the previous official rate of EGP 8.88.
Equity traders in Cairo reported a deluge of buy orders, some of which were unfilled because the stocks had no room to rise further for the day.
In mid-March, the central bank devalued the pound to 8.85 per dollar from 7.73; the stock market rallied 6.7 percent that day.
Analysts said the market's gains could be greater this time because the size of the devaluation was much bigger, suggesting it had more chance of convincing investors that the pound was now fairly valued. The float is also expected to clear the way for a $12 billion loan which Egypt has been negotiating to obtain from the International Monetary Fund.
The devaluation could draw billions of dollars of investment into Egypt, and encourage hundreds of thousands of Egyptians living overseas to send money home.
A Dubai analyst, however, said that some foreign investors were likely to remain cautious about putting money into Egypt for now until they saw how well Egyptian authorities managed the float, and because of uncertainties overhanging emerging markets such as the U.S. presidential election.
Egyptian importers such as Juhayna Food Industries , GB Auto and Ezz Steel should benefit from the devaluation because they will now have easier access to foreign exchange, said local brokerage Naeem. It said the companies had been paying exorbitant rates for dollars in the unofficial market.
Real estate stocks had already been performing well in anticipation of the devaluation, as investors use real estate to hedge against the inflation that may be triggered by a weaker currency, Naeem said.