Philippine share prices may extend its consolidation for another week as investors lock in gains following the previous week’s rallies.

Despite posting losses last week, the local market remains in overbought condition with US stocks hitting resistance levels. 

“We might go through a consolidation in the short-term, but it’s not to say the rise will be over. We think it’s just consolidation for profit-taking to take place and bargain hunters to come in,” April Lee Tan, head of research at CitisecOnline.com said.

“We expect the index to be in a range for the coming week after the January effect lessens,” Gregg Adrian Ilag of AB Capital Securities Inc. said. 

Immediate support for the index was at 4,600, while initial resistance is at 4,720.

The Philippine Stock Exchange index retreated 68 points or 1.45 percent last week, but Tan noted that a big chunk of the decline can be attributed to index heavyweight Philippine Long Distance Telephone Co.

“[Digital Telecommunication Philippines Inc.] shares were converted to PLDT shares and the conversion price was P2,500. PLDT was trading above P2,500 so a lot of investors took profits,” she said.

Market participants will closely watch the release of the country’s gross domestic product data on Monday. The government targets at least 4 percent in 2011 and between 5 percent and 6 percent in 2012. 

Overseas, the world economic forum in Davos, Switzerland will be influential to the global market sentiment, setting the tone for the week’s trades. Among the economic indicators that will be released in the United States is the closely watched non-farm payroll, the last results of which beat estimates. 

On Friday, Fitch downgraded the sovereign debt ratings of five eurozone nations, including Italy and Spain. 

“The lower ratings may squeeze credit market access for the troubled economies, adding to fears of a contagion as Greece struggles to negotiate terms of its restructuring ahead of a March 20 redemption,” Jun Calaycay of Accord Capital Equities Inc. said.

Wall Street also provides a weak backdrop with the Dow Jones industrial average losing 74.17 points, or 0.58 percent, to close at 12,660.46 on Friday.

The PSEi may possibly close out the year at 5,400 as risk appetite normalizes, said Tan. 

“In a way 2011 was a low base so 2012 should be a better year because we have commodity prices and interest rates going down,” she said. 

“Government is increasing spending so we are bullish. Holding all else equal the lower interest rates will lead to higher valuations and more liquidity looking for better alternatives,” Tan added. Manila Times