The Kenyan shilling was stable against the dollar on Friday, and traders said prevailing tight shilling liquidity was expected to keep the local currency on a strengthening bias, while the main share index broke a four-day losing streak.

At 1300 GMT, commercial banks quoted the shilling at 92.70/90 to the dollar, compared with Thursday's close of 92.85/95, and barely moved from earlier Friday trade.

Traders said the central bank's latest revised rules on liquidity management through the discount window, announced after the close, may improve liquidity slightly and ease interbank lending rates somewhat, which should translate to a slightly stronger shilling.

On the exchange rate, the mere fact it's going to provide liquidity, that is why people are paying it. To me I don't think it is a strong indicator of holding a long dollar position, said Robert Gatobu, trader at Bank of Africa.

Funding will still be a challenge. It (lending rates) might ease, but not the easing that the market might want. The market needs a bigger change.

The new rules, which were announced after markets closed on Friday, said the central bank would start using a moving average of interbank lending rates over an unspecified longer period to compute its discount window rate, as opposed to using the previous day's weighted average interbank lending rate.

Liquidity for shillings has dried up, and interbank lending rates have surged since a previous revision of central bank overnight borrowing rules on August12. The tight liquidity has in turn made it more attractive to hold onto shillings instead of dollars.

The weighted average interbank lending rate jumped to 26.37 percent on Thursday, from 24.25 percent a day before, and from 8.34 on August 12, when the bank tightened the rules.

The shilling is a bit stronger. The tightness in the money market is what is determining the direction for now, said a senior trader at one commercial bank.

Traders said they expected the shilling to trade in the 92.60-93.20 range against the dollar in coming days, with an eye on demand for the U.S. currency that traditionally comes at the end of the month.

A senior official at the Finance Ministry added to calls for lower lending rates, saying interbank borrowing rate of 26 percent was unacceptable, and that staff from the ministry of finance and the central bank were working on a plan to deal with interest rates while supporting the shilling currency.

On the Nairobi Stock Exchange, the main NSE-20 Share Index broke its losing streak from the past four days to close up 14.11 points at 3,458.39 as investors selectively took up discounted stocks.

The market has been sliding so it is a good time to get in, not all in, but a touch here, a touch there, said Chris Miriti, head of trading at African Alliance.

Among the gainers was East African Breweries Limited, up 1.2 percent to end at 127 shillings on what Miriti said was better than expected full year performance due to intense competition in Tanzania.

Investors didn't even expect a dividend. The market was pretty happy with the result, said Miriti.

On the stock exchange, government and corporate bonds valued at 254.4 million shillings were traded, down from 968.3 million traded a day before.