China to buy Malaysian bonds, offers investment quota in Southeast Asia push

(Adds comments from Premier Li, market reaction)

KUALA LUMPUR, Nov 23 (Reuters) - China will buy more Malaysian government bonds and give the country a 50 billion yuan ($7.83 billion) quota to invest in Chinese stocks and bonds as it looks to strengthen ties with Southeast Asia.

Premier Li Keqiang announced the moves at a business forum in Kuala Lumpur, state news agency Xinhua reported on Monday.

Li was in Kuala Lumpur for the Association for Southeast Asian Nations (ASEAN) summit that ended on Sunday. He was due to hold talks with Malaysian Prime Minister Najib Razak on Monday.

China said on Sunday it is offering $10 billion in infrastructure loans to Southeast Asian countries along with aid to the region's underdeveloped states, as it seeks to expand its influence in the developing world.

Beijing's relations with Southeast Asian countries have strained recently over China's reclamation and construction in disputed South China Sea islands.

Li also said China will buy more Malaysian treasury bonds to help stabilise its financial markets.

"Inflation is peaking and currencies depreciate. It is imperative to stabilise the financial market. So, we want assume a market role by purchasing your treasury bonds," he said at the Malaysia-China economic forum.

Malaysia's bond and stock markets were largely unmoved by the news.

Investor confidence in the country has faltered as weak commodity prices take a toll on the economy and a scandal at an indebted state fund raises questions over Prime Minister Najib Razak's leadership.

The ringgit is the worst-performing emerging market currency in Asia so far this year, having lost 19 percent of its value against the U.S. dollar, while the country's benchmark stock index is down about 6 percent.

Malaysia posted its slowest economic growth and smallest current account surplus in over two years in the third quarter.

Malaysia will also be allowed to invest in China's capital markets through its new quota in the Renminbi Qualified Foreign Institutional Investors (RQFII) plan, Li said.

Neighbouring Singapore said earlier this month that China had doubled its quota to 100 billion yuan ($15.72 billion).

China is Malaysia's largest trade partner and they have close diplomatic ties. (Reporting by Praveen Menon; Editing by Himani Sarkar & Kim Coghill)