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Malaysia ringgit hits 3-week high after fuel subsidies cut

* Ringgit outperforms some SE Asia currencies

* Immediate chart resistance seen at 3.2600/dlr for now

SINGAPORE, Sept 3 (Reuters) - The Malaysian ringgit hit a three-week high on Tuesday, outperforming some Southeast Asian currencies, as offshore funds bought it after the government cut fuel subsidies to reduce the country's fiscal deficit.

The ringgit advanced 0.29 percent to 3.2645 as of 0307 GMT, after hitting 3.2590, its strongest since Aug. 13.

That compared with a 0.23 percent gain for the Thai baht and 0.27 percent appreciation of the Philippine peso .

Malaysian government bond yields slid.

Late Monday, Malaysia Prime Minister Najib Razak looked to sidestep political opponents and temper market jitters by cutting fuel subsidies to beef up the country's fiscal position, which had spurred capital outflows.

The cuts in petrol subsidies, effective from Tuesday, will save the government an estimated 1.1 billion ringgit ($336 million) this year and another 3.3 billion ringgit in 2014, he said.

Saktiandi Supaat, head of FX research for Maybank in Singapore, said the subsidy cut "will help support the ringgit in so much as it will reduce the fiscal deficit."

"The intensity of support will depend on the budget announcement in October. Still, it is a good start as it will help allay concerns until the budget," he said.

Supaat said the ringgit may outperform other Southeast Asian currencies after the 2014 budget plan and especially if the government takes additional steps such as smaller public spending.

In 2012, Malaysia's budget deficit was 4.5 percent of gross domestic product, the second highest in emerging markets after India. Ratings agency Fitch cited the high budget deficit as one factor when it lowered the outlook on Malaysia's A-/A credit ratings to negative from stable in late August.

The commodity-dependent country's fiscal gap slowing exports and high foreign ownership of government bonds has highlighted its vulnerability to market sell-offs amid the recent currency rout.

The ringgit has suffered monthly losses since May when Najib's coalition extended its 56-year rule but had its worst-ever election performance.

During the four months, it lost 7.4 percent against the dollar, according to Thomson Reuters data. One factor putting pressure on the ringgit in those months was an absence of reforms to reduce the fiscal deficit.

The local unit is seen facing an immediate chart resistance at 3.2600, its session lows of early August, traders and analysts said.

The next level would be 3.2461, the 23.6 percent Fibonacci retracement of its depreciation between May and August.

Still, the ringgit is not free from expectations that the Federal Reserve may start reducing bond-buying programme as soon as this month, traders and analysts said.

"I don't think the ringgit will break 3.25 even, unless Fed tapering is postponed to December," said an Asian bank trader in Singapore.

(Reporting by Jongwoo Cheon and Reuters FX Analyst Rick Lloyd; Editing by Richard Borsuk)