Nov. 26 (Bloomberg) -- Vietnam’s dong fell to a record low after the central bank devalued the currency to curb quickening inflation and a widening trade deficit. Stocks dropped and headed for the worst week since October 2008.

The State Bank of Vietnam yesterday set the reference rate for today’s trading 5.2 percent lower at 17,961 against the dollar, after the difference between spot and black-market rates widened to the most in a decade. The dong has fallen 5.4 percent this year, set for a second annual decline.

“The central bank is trying to regain control of the foreign-exchange market by stepping up with an aggressive approach to stop the drift in the unofficial market rate,” said Fiachra MacCana, managing director and head of research at Ho Chi Minh City Securities Co.

The dong declined 3.3 percent to 18,488 against the dollar as of 3:41 p.m. in Hanoi, according to data compiled by Bloomberg. It earlier traded as low as 18,500, 3 percent weaker than the reference rate. The central bank yesterday narrowed the daily trading band to 3 percent from 5 percent to limit moves.

Vietnam’s trade deficit widened to $1.75 billion in November, compared with a revised $1.6 billion in October, based on preliminary figures released from the General Statistics Office in Hanoi today.

The benchmark VN Index dropped 4.1 percent to close at 482.60, extending the week’s loss to 13.6 percent, which would be the biggest decline since the period ended Oct. 10, 2008.

“The central bank’s policy in relation to the currency market also has a big impact on the stock market,” MacCana said.

Slowing Trading

The State Securities Commission of Vietnam ordered companies to restrict lending for stock investment, according to a statement on its Web site.

“This will slow trading a bit but be fairer for investors, since previously only big investors could get this type of lending from brokerages,” said Nguyen Duc Hai, chief analyst at Vietcombank Securities Co. in Hanoi.

Vietnam yesterday increased the benchmark rate one percentage point to 8 percent, the first nation in Asia to raise borrowing costs this year. The Southeast Asian country is trying to sustain an economic expansion in 2010, lower credit growth and meet economic targets, the central bank said yesterday.

“The State Bank of Vietnam wants to control inflation and the trade deficit, but by devaluing the dong, higher import prices will put pressure on inflation,” said Nguyen Van Hoang, chief investment officer at Saigon Asset Management in Ho Chi Minh City. “They might not get what they expected.”

Lower Earnings

Gamuda Bhd., Malaysia’s second-biggest builder, will earn 5 percent less from its industrial park near Hanoi because of the devaluation, according to a report issued today by RHB Research Institute Sdn.

“Funding costs for corporates are on their way up so this may lead to some downward revisions in earnings outlooks,” said Mark Canizares, head of equities at Ho Chi Minh City-based Manulife Vietnam Fund Management, which has about $280 million in assets under management.

State Bank of Vietnam Governor Nguyen Van Giau asked commercial banks to ensure liquidity and supply of foreign currency, according to a statement on the central bank’s Web site today. Banks need to tightly control loans for securities and property, he said. State-owned lenders have agreed not to raise deposit rates higher than 10.5 percent, the statement said.

Consumer prices gained 4.35 percent in November from a year earlier, the biggest increase since May, the statistics office said yesterday.

Calming the Market

“The increase in the prime rate is reasonable, but by itself it’s not going to calm down the currency market,” MacCana at Ho Chi Minh City Securities said. “The movement in the reference rate is kind of chasing after the black-market rate, but is not enough to catch up.”

The currency strengthened as far as 19,350 at money changers in Ho Chi Minh City as of 3:40 p.m., compared with 19,600 to 19,890 yesterday, according to a state-run telephone directory information service.

Three-month non-deliverable forwards fell 0.3 percent to 19,960 against the dollar, versus 19,900 yesterday. That means traders are betting on a 7.4 percent decline in the currency from the spot rate of 18,488. Forwards, settled in dollars, are agreements in which assets are bought and sold at current prices for future delivery.

The yield on the benchmark five-year bond was unchanged at 11.13 percent, according to a daily fixing price from banks compiled by Bloomberg. A ba