Malaysia’s ringgit fell to a 17-year low as a renewed selloff in stocks and Brazil’s rating downgrade reignited concern capital will flow out of emerging markets as the US prepares to raise interest rates.

Asian equities tracked US shares lower after a jobs report bolstered the case for the Federal Reserve to tighten monetary policy as soon as next week’s meeting, although interest rate futures only show 28 percent odds for such a move.

In a sign the global economy is slowing along with China, New Zealand’s central bank cut borrowing costs today for the third time this year.

Malaysia’s factory output data topped estimates and the central bank is expected to hold its benchmark rate tomorrow.

“The drop in US equities, the rate cut by the Reserve Bank of New Zealand, and cutting Brazil’s rating to junk should push emerging markets down,” said Masashi Murata, vice-president at Brown Brothers Harriman & Co in Tokyo. “All Asian currencies are likely to drop with risk-off trading.”

Malaysia’s currency fell 0.1 percent to 4.3342 a US dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg .

It dropped earlier by as much as 1.2 percent to 4.3798, the lowest level since January 1998 when it reached a record 4.8850.

Bonds drop

A 3.8 percent drop in Brent crude overnight deepened the gloom for Malaysia, which is Asia’s only major net oil exporter.

The ringgit has declined 26 percent in the past 12 months as the price of the commodity halved. Standard & Poor’s cut Brazil’s sovereign rating to junk yesterday.

Global funds reduced holdings of Malaysian government bonds for a second month in August to the lowest level since March. They’ve sold a net RM16.4 billion of the nation’s stocks so far this year, according to data from BIMB Securities Research in Kuala Lumpur.

Official data released today showed Malaysia’s factory output rose 6.1 percent in July from a year earlier, more than the 4.3 percent in June and the median 5 percent forecast in a Bloomberg survey.

Bank Negara Malaysia will keep the benchmark interest rate at 3.25 percent tomorrow, according to 22 of 23 economists. One predicts a 25-basis point increase.

The yield on the nation’s government bonds due 2017 rose four basis points to 3.47 percent, prices from Bursa Malaysia showed.

- Bloomberg