(AFP) The government is considering further pump priming measures to mitigate a weakening of the US economy due to this week's terrorist attacks, Prime Minister Dr Mahathir Mohamad said today.

The premier said the Malaysian economy was "closely-pegged" with that of the United States and the "incident will divert all attention away from pure trade and things like that to matters of security."

"The US economy will suffer and we will also be affected," he was quoted as saying by Bernama news agency after signing the condolence book at the US embassy here.

"We are seriously looking into doing this," he said when asked whether Malaysia would introduce further fiscal pump-priming to stimulate the economy.

Second revision of growth forecast

The government in March unveiled a RM3 billion supplementary budget to shore up the economy.

The United States accounts for about 19 percent of Malaysia's global trade, mainly in rubber products, textiles and clothing, optical and scientific goods, electrical and electronics products and wood products.

Bilateral trade last year was estimated at RM120 billion, Bernama said. In the first two months this year, Malaysia's exports to the US rose 13 percent year-on-year to RM11.5 billion.

The government will for a second time revise its official growth forecast for this year when it unveils its 2002 budget next month. In March it cut its growth estimate from seven percent to between five and six percent amid the US slowdown. The economy grew 8.5 percent in 2000.

Meanwhile, the National Economic Action Council executive director Mustapa Mohamed said a special team has been formed to monitor US developments and ensure they did not adversely affect Malaysia's economy.

The special team will hold daily meetings with public and private sector representatives and various business chambers and groups, he said.

Not badly affected

Mustapa said Malaysia was concerned over the effects of the terrorist attacks and US retaliation on the world economy, such as rising oil prices and expansion of the US armed forces capabilities.

However he believed Malaysia would not be badly affected because of its resilient financial system and the currency peg which had helped ease the severity of the economic downturn.

The local ringgit has been pegged at 3.80 to the dollar since 1998.

Mustapa said a sharp downturn in the stock market was a "temporary setback" as investors lost confidence in the wake of the attacks on New York and Washington.

"This followed the closing of US airports because we could not ship the locally-made electronic products which we normally export by air," he added.

The Kuala Lumpur Stock Exchange was closed on Wednesday to prevent volatility due to the attacks on the US.

But it did not escape the panic selling that has hit the region, falling 3.8 percent yesterday and closing down 3.5 percent at the end of morning trade today.