UPDATE 1-Malaysia to offer more Islamic traded funds in '08

(Adds quotes, background)

KUALA LUMPUR, May 12 (Reuters) - Malaysia will launch a foreign currency tranche of an Islamic exchange traded fund this year, its central bank chief said on Monday, as the country steps up efforts to lead the $900 billion industry.

"Asia's first Islamic exchange traded fund was issued in January 2008 valued at the equivalent of $262.5 million," Zeti Akhtar Aziz said in speech delivered in Amman.

"A second foreign currency tranche is expected to be launched later in the year which is open for participation of international investors."

She did not give details.

The first tranche of the exchange traded fund was denominated in the ringgit currency and had 25 Malaysian underlying stocks such as plantations to energy group Sime Darby (SIME.KL: Quote, Profile, Research), mobile phone firm DiGi (DSOM.KL: Quote, Profile, Research), shipper MISC (MISC.KL: Quote, Profile, Research) and builder Gamuda (GAMU.KL: Quote, Profile, Research).

Mostly Muslim Malaysia is stepping up efforts to become a global hub for Islamic finance in a race that pits it against financial centres such as Dubai and London.

The Southeast Asian country has the world's largest Islamic bond market, accounting for about 60 percent of global Islamic bonds outstanding which are worth about $100 billion, according to central bank estimates.

To woo more money into the Islamic finance industry, the central bank is offering licences for international Islamic banks and Islamic insurance firms to conduct business in foreign currencies.  Continued...