PHILIPPINE share prices on Monday rallied on expectations that benign inflation conditions may prompt monetary authorities to cut policy rates, a move that will boost appetite for stocks.

At the Philippine Stock Exchange, the composite index rose 58.24 points or 1.3 percent to 4,541.60, while the broader all-shares index added 37.39 points or 1.22 percent to 3,094.05.

All sectors finished in the green with the industrials and holding firms counters reversing thin losses in the morning session.

Advancers led decliners, 101 to 61, while 42 stocks were unchanged. A total of 4.64 billion stocks worth P5.2 billion changed hands.

“The local mart cheered speculations the central bank would ease policy rates ahead of their meeting,” said Freya Natividad, investment analyst at 2TradeAsia.com.

Local inflation eased to an 11-month low in December, referring to the Bangko Sentral ng Pilipinas.

Natividad added the rally was reflected in the gains by property and financial-related stocks, sectors that will benefit from a possible interest rate cut.

“Mining and exploration issues were also highlighted, echoing the dollar-peso trend, since production from these firms are exported,” she added.

At the start of trading, local share prices briefly tracked the weakness in Asian markets, which was dragged by statements of Federal Bank of St. Louis President James Bullard that the US Federal Reserve may not begin a new round of bond purchases.

“Improved economic numbers, particularly in the jobs market and manufacturing, out of the US boosted share prices throughout the region for much of last week,” said Jun Calaycay of Accord Capital Equities Corp.

“Today, these same numbers are being cited as the reasons the US Federal Reserve may not be keen on implementing additional bond purchases,” he added.

Analysts expect appetite for stocks to remain high on expectations of more positive economic data out of the United States this week, while keeping close tabs on developments in Europe, particularly German Chancellor Angela Merkel and French President Nicolas Sarkozy’s first meeting for the year.

The local market has advanced in six of the last seven days, raising the likelihood of healthy pullbacks moving forward.

“This correction should instigate more buyers to step in as the external situation remains benign while the domestic economy offers hope,” Calaycay said.

Support is at the 4,470 line, which was tested and validated in Friday’s correction, while resistance is at the all-time high of 4,550 to 4,565.

Meanwhile, the peso closed slightly stronger versus the greenback on Monday amid investors’ move to buy local currency to take advantage of the weaker peso last week.

At the Philippine Dealing System, the local currency closed at P44.11 from Friday’s P44.13.

The dollar-peso pair opened at P44.250 and moved to a slightly high of P44.34 and a low of P44.09.

Total trading volume increased to $1330.35 billion from $1229.05 billion the previous trading day.

WITH REPORT FROM KATRINA MENNEN A. VALDEZ