While considering the recent leap in the value of the rupiah to the U.S. dollar as a positive sign for the economy, Vice President Jusuf Kalla stressed a stable exchange rate was more favorable than a sharp but appreciation.

"A stable currency is most important for our economy, whatever the value is. The strengthening of the rupiah is positive, but it shouldn't be too strong because it could undermine our export competitiveness," said Kalla on Friday.

Kalla, formerly a businessman with the Hadji Kalla business group, said that under the 2006 state budget the rupiah was set at an average of Rp 9,800 per U.S. dollar, meaning that its stable range would be between Rp 9,500 and Rp 10,000.

"Although the inflow of the greenback is still accumulated in the financial market, I believe that in two or three months it could flow into investment (in the real sector). The government will maintain a stable currency to support the investment (climate)."

The rupiah has gained ground against the dollar in recent weeks, appreciating by about 5 percent this year alone. It reached its highest level since March last year on Thursday, closing at Rp 9,345 per dollar.

Aside from the region-wide weakening of the greenback, the strengthening has been driven by continuous capital inflow following more attractive rupiah-denominated assets and amid the higher interest rates imposed by the central bank.

However, the rupiah ended slightly lower on Friday at Rp 9,370 to the greenback, with the dollar also strengthening against other currencies in the region.

The Jakarta Stock Exchange Composite Index, meanwhile, closed 0.5 percent lower at 1,250.428 points for a second consecutive session, with investors consolidating their stance following unexpected record high trading on Wednesday.

Analysts say a stronger rupiah should bode well for efforts to ease inflationary pressure, and in turn help the central bank to cut interest rates to spur economic growth.

Kalla has said that the government would reduce the volatility of the rupiah by ensuring that the country's economy could be maintained and strengthened over the long term, and by encouraging investment in manufacturing, infrastructure and plantation sectors.

Analysts believe that the current appreciation of the rupiah is mainly driven by the actions of several Indonesian tycoons who do not feel secure parking their funds or making any long-term investments here.

They have long acted as Indonesia's economic backbone, even after the 1997/1998 financial crisis. Although most of the tycoons moved their money out of the country in the wake of the crisis, many continue to maintain a significant business presence here.

According to a central bank report, investment in the government's promissory notes doubled to Rp 31 trillion (US$3.24 billion) in the first week of December, from Rp 15.2 trillion in July last year.