Indonesian stocks fell, sending the benchmark index to its biggest loss in more than two months, as accelerating inflation increased concern among some investors that the central bank will raise its main interest rate.

PT Astra International, the nation's largest automotive retailer, tumbled the most in more than a year and PT Bank Rakyat Indonesia retreated 4.2 percent, leading declines among financial stocks. The central bank will announce its decision on the reference rate tomorrow.

"The concern is that interest rates will rise sooner than people thought," said Fadlul Imansyah, who helps manage $190 million in assets at PT CIMB Principal Asset Management in Jakarta.

The Jakarta Composite Index dropped 2.8 percent to close at 2,973.66, its biggest decline since May 25. The gauge, the first in Asia to enter a bull market since the peak of the European debt crisis in May, has rallied 17 percent this year as record- low interest rates accelerated growth in Southeast Asia's biggest economy and boosted earnings.

Citigroup Inc. said in a report that a surge in July inflation has boosted odds the central bank will lift interest rates earlier than its forecast for a first-quarter increase. The central bank will be "more hawkish" in its next monetary policy statement, Citigroup said.

Eoin Treacy's view While many of its neighbours have tightened rates over the last few months, Indonesian short-term interest rates have been held static at 6.5% for the last year. It is hard to imagine that Indonesia, with some of the best performing financial markets in the world, is not experiencing some inflation at this juncture so a hike in interest rates appears more likely than not.

The Jakarta Composite pulled back sharply today having become somewhat overextended relative to the 200-day MA. However, a sustained move below that mean, currently near 2700, would be required to question the consistency of the medium-term uptrend.