NAIROBI, Nov 24 (Reuters) - Kenya's shilling weakened to close near three-year lows on Monday after Islamist militants ambushed a bus and killed 28 people near the Somali border at the weekend, threatening the country's ailing tourism industry.
Shares also retreated. At the 1600 GMT close of trade, commercial banks posted the shilling at 90.05/90.25 against the dollar, weaker than Friday's closing level of 90.05/15. Earlier this month the shilling weakened to 90.25/35, its lowest level since November 2011. "The attack on Saturday has hurt business sentiment. There are jitters among the business community, foreign investors and banks are in panic-buying mode. No one wants to be short on dollar," said Sheik Mehran, head of trading at I&M Bank.
Bouts of insecurity in the short term tend to have a bigger impact on the shilling than on the country's stock market. The attack at the weekend unfolded far from Kenya's tourism hotspots, but traders worry it will add to the idea that Kenya is unsafe.
Somalia's Islamist al Shabaab militants have claimed responsibility for the attack on Saturday, when gunmen shot dead 19 men and nine women. Kenyan forces said they hit back, killing 100 militants.
The central bank sold dollars on Thursday and Friday last week to prop up the shilling, on both occasions offering dollars when the local currency was around the 90.30-level.
The shilling has been under pressure this year mainly due to a slump in revenues from tourism, a major hard currency earner that has been hit by a spate of militant attacks, traders said.
"With these kind of attacks tourism will not pick up soon," National Bank of Kenya trader Ian Kahangara said.
In the stock market, the benchmark NSE-20 share index fell 0.4 percent or 20.47 points lower to close at 5,145.98 points. Aly-Khan Satchu, an independent trader and analyst, said stocks retreated amid low volumes as investors sought clarity over the weekend attacks and the markets lost momentum heading into the festive period.
"Insecurity remains an Achilles heel for our markets and with events over the weekend... everyone sort of sat back and watched how it's going to pan out." On the secondary market, government bonds valued at 749.5 million shillings ($8.31 million) were traded, down from Friday's 2.45 billion shillings.
