By Kevin Mwanza

NAIROBI, Feb 12 (Reuters) - The Kenyan shilling firmed

against the dollar on Tuesday helped by the central bank's

squeeze on liquidity in the market, while the main share index

extended its rally to hit a 27-month high.

At the 1300 GMT closer, commercial banks posted the shilling at 87.30/40 to the dollar, stronger than Monday's close

of 87.45/65.

'It looks like the shilling will have some strength with

interest rates going up. (The central bank) has done some good

work to contain the shilling,' said Duncan Kinuthia, head of

trading at Commercial Bank of Africa.

The weighted average interbank lending rate jumped to 8.8

percent on Monday from 8.3 percent on Friday. The rate, which

banks pay to borrow from each other overnight, has risen for 19

straight sessions from a low of 5.4 percent on Jan. 15.

Higher borrowing costs in the money markets make it

marginally more expensive for banks to fund long dollar

positions, hence offering support to the local currency.

The local currency has been under pressure this year from

importers buying dollars ahead of a presidential election on

March 4, and it is 1.4 percent down against the dollar in the

year-to-date.

The last presidential vote in 2007 was followed by ethnic

unrest that hurt the country's economy, and investors are

concerned the same might happen after next month's vote.

Traders said the shilling was also receiving support from

foreign investors who are buying Kenyan shares.

In stocks, the benchmark share index NSE-20 rose

for the 10th straight session, up 0.5 percent to 4,633.48

points, a level last touched on Nov. 9, 2010.

The main index has rallied 12 percent so far this year.

The rally has mainly been driven by investors buying stocks,

especially from banks, ahead of the release of full-year

earnings, which they expect to be strong due to falling interest

rate and lower inflation reading last year.

Kenya Commercial Bank, the country's biggest bank

by assets, led the gains for the third straight session, adding

4.1 percent to close at 38.25 shillings a share. It hit a new

record high of 39 shillings during the session.

Traders said they expected the bank to post a minimum

earnings per share of 5.5 shillings for full year 2012 when it

unveils results on Feb. 27, up from 4.21 shillings in the first

nine months of the year.

'(Investors) are assuming fourth quarter results will be

stronger than it was in third quarter,' said Francis Mwangi,

research analyst Standard Investment Bank.

In the debt market, government and corporate bonds worth

1.35 billion shillings ($15.4 million) were traded, up from 320

million shillings on Monday.

...........................Shilling spot rates

.....................Shilling forward rates

.......................Cross rates

..................................Local contributors

.......................Central Bank of Kenya Index

.....................Kenyan Bonds contributor pages

...............Treasury bill yields

..................Central bank open market operations

.........................Horizontal repo transactions

,................Daily interbank lending rate

.............................Kenya Bond pricing

..................Real time Africa economic data

...........................African economic news

.................................NSE-20 Share Index

.................................NSE All Share Index

...........................FT NSE Kenya 15 Index

.......................... FT NSE Kenya 25 Index

SPEED GUIDES:

($1 = 87.6000 Kenyan shillings)

(Additional reporting by Beatrice Gachenge; Editing by James

Macharia, Ron Askew)

Keywords: KENYA MARKETS/

(kevin.mwanza@thomsonreuters.com)(Tel: +254 20 2224717)(Reuters Messaging: kevin.mwanza.thomsonreuters.com@reuters.net)

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