NAIROBI (Reuters) - The Kenya shilling seesawed against the dollar on Friday in volatile trade as banks covered their short positions and others took profits and dealers said they expected the local unit to weaken next week. Commercial banks closed trading at 63.40/50 against dollar compared with Thursday's close of 62.30/40. It had touched a low of 63.50/60. The government is selling a 25 percent stake in mobile phone company Safaricom to raise 51.75 billion shillings in an initial public offering. More than 20 percent of that amount has been paid for in foreign currency. During the offer period, banks held back their dollar demand in anticipation of huge greenback inflows but the government has announced payment by foreign investors would be made into central bank coffers and not into commercial banks. "For the past month, people have been short of dollars, people have been covering their shorts," said Andrew Shitakha, a trader at Chase Bank. "It's been yo-yoing ... the shilling went up, some people took advantage of that." Dealers said banks had been covering their short positions in anticipation of extra shilling liquidity in the market when Safaricom debuts at the stock exchange on Monday. The issue was oversubscribed by 532 percent and the government is expected to start making refunds in shillings soon. Dealers said the local unit dropped to a low of 63.50/60 before recovering during the trading session. "Corporate demand for dollars was large and eventually interbank got excited and picked it up as well," said Sophie Achack, a dealer from CFC Stanbick. "It had overshot because interbank had taken too much. Then it came back and balanced." Most of the IPO money was held by the lead receiving bank which caused liquidity tightness, dealers said. "The bulk of it is with Citibank because they are the receiving bank for the IPO. From Monday we should be seeing some hefty returns being paid back to the commercial banks," Shitakha said. To stem inflationary pressures, Kenya's central bank on Thursday raised its key CBR rate to 9.00 percent from 8.75 percent. One dealer said the move was a pre-emptive attempt to mop up the expected excess shilling liquidity from the market. Other dealers said the market would remain volatile because the success of the IPO had artificially inflated the shilling against the dollar. "We may see it edge upwards to 63.00 levels on Monday," said Shitakha. | 
