Norway central bank to buy more foreign currency for wealth fund

OSLO, Aug 31 (Reuters) - Norway's central bank said on Wednesday it would sharply increase its purchase of foreign currency for its sovereign wealth fund in September, amid a surge in the country's oil and gas revenues.

Norges Bank plans to exchange 3.5 billion Norwegian crowns ($355.41 million) per day into foreign currency, up from 1.5 billion per day in August, which will in turn be invested abroad by the $1.2 trillion wealth fund, already the world's largest.

DNB Markets had predicted in advance that Norges bank would increase the daily purchases to 2.5 billion Norwegian crowns.

The crown currency weakened on the news, falling to 9.90 against the euro at 0926 GMT from 9.82 just ahead of the announcement.

"This large shift points toward a weaker NOK ahead," said Nordea Markets, adding that the increase in currency purchase would also alleviate upward pressure on Norwegian interbank interest rates.

The crown may also in the time ahead be hit by stock market weakness, said Nordea, forecasting an exchange rate of 10.3 crowns per euro by year-end.

This year's spike in the price of petroleum, Norway's main export, has led to a big inflow of tax revenues that exceeded government spending.

Economists have said that a larger purchase of foreign exchange, and thus larger sales volumes of crowns, may weaken the Norwegian currency.

Norges Bank says its transactions are conducted for fiscal reasons on behalf of the state, and are not to be regarded as market intervention.

Norway is western Europe's largest oil and gas producer, with daily output of more than 4 million barrels of oil equivalent. ($1 = 9.8477 Norwegian crowns)
Reporting by Terje Solsvik, Editing by Stine Jacobsen and Gareth Jones

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