Hanoi  - Investors in Vietnam's stock market started trading on a positive note Friday after seeing Vietnamese stocks finally inch up after a month-long slide.

The rise comes after the government raised the prime interest rate to 14 per cent from 12 per cent Tuesday in an effort to tame runaway inflation, which topped 25 per cent year-on-year in May.

"There's a growing sense of realization of government policy measures," said Dominic Scriven, co-founder and director at investment company Dragon Capital. "And that those measures are finally delivering results."

The recovery was slight, as the Ho Chi Minh City Stock Exchange's VN Index added less than 1 per cent to close at 370.55 points. The Index dropped below the significant
400-point mark on May 5 and had declined every day since.

With rising inflation and limited liquidity in the country, domestic investors lacked motive or the means to invest in the failing market. Foreign investment had made up the bulk of recent activity.

That trend changed yesterday as domestic investors started buying back in.

Dinh Anh, head of research with Saigon Securities, said that as stocks had slid for so long they were beginning to look more attractive to domestic investors.

"The domestic situation has not changed that much," said Anh. "But the sentiment is not that pessimistic. Local investors need to drive the markets."

Anh and Scriven were reluctant to say whether the upward trend would continue.

"There are still a number of technical issues to deal with," said Scriven, noting that the risky practice of taking out bank loans to buy stocks and using the shares as collateral remains common.

Anh said banks are holding billions of dong in mortgages backed by stocks.

Investors say they are looking to earnings forecasts as an indicator of whether share prices will recover. Vietnam's economy grew 8.5 per cent last year, but the government has cut its economic growth target from 8.5- 9 per cent to 7 per cent this year.

The Vietnamese stock market has been the worst performing stock market in the world this year, plunging by 60 per cent since January 1. (dpa)