Strong Kenyan shilling eases as banks dip back into dollars

NAIROBI (Reuters) - The shilling weakened slightly on Tuesday as commercial banks bought dollars a day after the local currency hit a four-month high on the back of foreign appetite for Kenyan shares and bonds. At 0752 GMT, commercial banks quoted the shilling at 85.20/40 per dollar, 0.1 percent down on Monday's close of 85.10/30. "The shilling had overextended its gains and is correcting as interbank players trim short dollar positions," said a trader at one commercial bank, adding banks were building up their long dollar positions instead. A lack of progress by U.S. lawmakers in budget and debt ceiling talks has unnerved global investors, pushing them out of dollar-denominated assets and benefiting emerging and frontier markets like Kenya. Traders said they expected the shilling to get some support later in the session from tea exporters selling dollars. Tea is Kenya's leading foreign currency earner and is sold in the port city of Mombasa every Monday and Tuesday. Exporters typically then convert their earnings into shillings to pay farmers and cover operational expenses. "There might be some agricultural flows, especially from the tea sector," said Julius Kiriinya, a trader at African Banking Corporation.