Hanoi - The US dollar is trading higher against the Vietnam dong on the country's black market since the State Bank of Vietnam expanded the currency's official trading band to 3 per cent, bank experts said Tuesday.

"The rising dollar stems from people's fear that foreign investors will withdraw capital from Vietnam," said Dao Trong Khanh, chief executive officer of Tien Phong Bank. "The decision by the State Bank to raise interest on dollar accounts also contributes to the psychology, as people think that banks are lacking dollars."

Last week, the central bank widened the band in which the dong is allowed to be officially traded to 3 per cent on either side of a fixed mid-point.

The central bank set Tuesday's reference rate at 16,600 dong to the dollar for those selling dollars. Commercial banks were selling dollars for 16,940 dong Tuesday, while on the black market Tuesday afternoon the rate reached 17,200.

"I think the dollar is rising on the black market because there have been rumours that foreign investors will withdraw capital from Vietnam," said Pham Thi Lan Anh, a senior official at Habubank. "If the dollar trends continue to rise, it will create problems for the State Bank."

Anh said the dollar's rise on the black market would make it harder for commercial banks to raise capital, forcing them to raise the interest they pay on dollar deposits. That would negatively affect Vietnamese importers who need dollars to purchase foreign goods.

Vietnam is trying to increase exports to stop economic growth from stalling after cutting growth targets because of the global financial crisis. A wider trading band gives more scope for the dong to weaken against the dollar, helping exports. (dpa)