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hare prices on the Indonesia Stock Exchange (IDX) plunged deeper on Friday as foreign investors left the market amid concerns about the possible tightening of global liquidity.

Securities traders said the price falls occurred across the board, pushing down the Jakarta Composite Index (JCI), the main price indicator in the local market.

The index declined 2.72 percent, the largest fall this year, to close at 4,865.32 on Friday, way below the psychological level of 5,000 it passed for the first time on April 18.

Joseph Pangaribuan of PT Samuel Sekuritas Indonesia said that foreign investors pulled out from the Indonesian market as the valuation was no longer attractive, while the possible squeeze on global liquidity could make equity investment in developed nations more attractive.

Many foreign investors sold their Indonesian shares to make a profit and seek more attractive investment options overseas, he said, adding that the projected increase in the rate of interest as a result of the expected rise in inflation also made Indonesian bonds less attractive.

Foreign institutional investors sold a net US$185 million of Indonesian shares on Friday, the most since Aug. 19, 2011. There were net sales during 10 days through June 5 amid speculation that China's economic growth would slow and the US Federal Reserve may scale back stimulus spending, Bloomberg reported.

Speculation that the Fed would reduce its debt-buying program, known as quantitative easing, has contributed to foreign fund withdrawals of Rp 5.03 trillion (US$504 million) from sovereign notes and $781 million from shares since the beginning of last week, according to data provided by the Finance Ministry and IDX.

The foreign fund outflow has also led to the fall in the rupiah, which reached nearly Rp 10,000 per US dollar last week. Bank Indonesia (BI) has been actively selling dollars to support the weak rupiah, which further dropped to 9,805 per dollar on Friday.

 BI Governor Agus Martowardojo said the central bank's dollar spending to save the rupiah had partly caused a decline in its foreign exchange (forex) reserves. At the end of May, forex reserves dropped to $105 billion from $107.3 billion in April.

Analysts warned that pressure on the rupiah could be even greater in June, when the demand for corporate debt payments and imports was traditionally higher. The fears over the tightening of global liquidity was not the only reason for the withdrawal of foreign funds. The possible worsening of the country's economic indicators was an additional reason why investors left the debt and equity markets in the past several days, the analyst said.

The government is predicting that inflation will surge this year on the back of the planned increase in the price of fuel. The government is planning to cut the subsidy on fuel in an attempt to ease the burden on the state budget and to use the money raised for other purposes, such as funding infrastructure projects that are expected to help the country maintain its economic growth.

The fuel-price hike, which will lead to higher inflation, will also make investors exit the bond market as returns would no longer be attractive.

PT Mandiri Sekuritas' head of equity research and strategy, John Daniel Rachmat, said that the increase in the JCI, along with other world indexes earlier this year, was supported by the inflow of hot money from developed countries.

'Now, they realize that conditions are not as attractive as before. So, now is the time for them to take their profits,' he said, predicting that the bearish conditions would cause the JCI to fluctuate between 4,500 and 4,600 in the coming weeks. The JCI reached its highest level of 5,214.97 on May 20.

Other emerging-market stocks also fell, heading for the longest stretch of weekly declines in a year. The MSCI Emerging Markets Index slid 0.7 percent to 978.53 at 2:14 p.m. in London, the lowest level since Nov. 19. The gauge has tumbled 3 percent this week, its fourth week of decline.