On Monday, a weaker Japanese yen dragged the ringgit through the barrier of four per US dollar for the first time in three months.

But the currency regained some of its composure on Tuesday and at 0830 GMT was quoted at 3.94/95 to the dollar. Still, dealers and analysts said the ringgit remained susceptible to renewed weakness.

"Ringgit is still vulnerable to further losses," said Ishak Ismail, an analyst at markets consultancy IDEA. "At the moment, we're seeing a technical pullback as the market is long on the dollar."

Analysts said the ringgit could fall to between 4.20 and 4.30 a dollar in the near term, levels last seen in late January. Any recovery would be limited to 3.80, they predicted.

Analysts have not ruled out the possibility that the currency could test the historical low of 4.88, set in early January.Until Asia's economic crisis erupted last July, the ringgit had hovered for years at about 2.5 per dollar. "We cannot discount anything right now as we are still quite bearish on the ringgit," said Philip Wee, regional treasury economist at Standard Chartered Bank in Singapore. "The major concern now is interest rates direction." Conflicting signals from authorities on interest rates have not helped the ringgit, which has lost 36 per cent of its value against the dollar since last July.

While prime minister Mahathir Mohamad has been openly pressing for lower interest rates to save businesses, the central bank, Bank Negara, has said it will keep monetary policy firm to contain inflation and defend the ringgit.

Deputy prime minister Anwar Ibrahim has defended the central bank and cautioned that capital could rush overseas if rates were too low.

"Interest rates are the ringgit's only defence now as reserves are too small," Wee said.

Mahathir's call for lower interest rates, compounded by a comment onMonday that he no longer worried about fluctuations in the currency, suggests that at least some officials are more worried over a possible recession than the ringgit's fall.

The prime minister said on Monday the government was no longer concerned about the fluctuations of the ringgit against the dollar because the country is moving towards conducting barter trade. "What we want to do is to get away from the value of the ringgit and this can be done easily by conducting trade on a countertrade basis or through practical bartering," he told reporters. "We are not very concerned anymore."

Analysts said growing fears about Malaysia's economic outlook would also weigh on the ringgit. A Reuters poll of 10 research houses on Tuesday forecast a 3.1 per cent decline in Malaysia's annual gross domestic product (GDP) in 1998, compared with the government's forecast of two to three per cent growth.

GDP fell by 1.8 per cent in the first quarter of the year, the first contraction since a recession in 1985.Economists expect a stronger contraction in the second quarter. Dealers said the recent rise in ringgit forward rates suggested a possible positioning ahead of a fresh speculative attack.

"Unless there was a major collapse in the dollar, the ringgit along with other regional currencies would remain under pressure," a dealer with a European bank said.