OREANDA-NEWS. February 03, 2015. Shares in cash-strapped Mumias Sugar surged 8.6 percent on Monday to lead Kenyan stocks higher on news that the government would rescue the country's leading sugar producer.

The shilling held steady.

Mumias' stock has risen since the government said on Thursday that it would inject 500 million shillings (\\$5.46 million) and revamp the management of the loss-making producer of the sweetener in a bid to revive its fortunes.

"There is more headroom for the market," Aly Khan-Satchu, an independent trader and analyst, said of the stock which has risen nearly 60 percent this year.

The benchmark NSE-20 share index closed 0.2 percent higher at 5,222.76 points and analysts said they expected further gains in the near-term.

Kenyan shares could benefit from foreign funds, looking for an alternative to the Nigerian markets, which have seen an exodus of investors after the sharp drop in the price of crude oil, Satchu said.

Lower inflation in Kenya and projected growth in corporate earnings could also boost stocks, he said.

Kenya's inflation came in lower than market expectations at 5.53 percent in the year to January from 6.02 percent a month ago as oil prices fell.

In the foreign exchange market, the shilling closed at 91.60/70 per dollar, barely changed from Friday's close of 91.65/75.

"There was an issue of liquidity last week that should be resolved this week, so thereafter you should see shilling lose ground again," said Chris Muiga, a senior trader at National Bank of Kenya.

Bond sales late last month combined with the weekly Treasury bills auctions caused a shortage of the local currency, offering temporary support to the Kenyan currency.

The shilling has lost ground steadily in the past 12 months or so, partly driven down by a spate of militant attacks that hit the tourism industry, a vital source of dollar revenues. The strength of the dollar in global markets has added pressure.

"The dollar continues to be strong globally," said Martin Runo, a senior trader at Chase Bank.

"I don't see it going to 92 (shillings to the dollar) so quickly but that is where we are headed."

In the debt market, bonds worth 1.1 billion shillings were traded, slightly down from Friday's volume of 1.2 billion shillings.

Copyright Reuters, 2015