The new fund is an expansion of a M$5 million fund set up in 1995 to promote investment in each other's country, she said.

At a dialogue with a 70-member Singapore business mission led by her counterpart George Yeo, Rafidah said plans were also being mooted to set up a Malaysian-Singapore business council to speed up joint-venture efforts.

"Be market-driven. If business is politically-driven, we will all lose out. Whatever it is, Malaysia and Singapore will not come to a point of war with each other. The world is getting competitive and we must go out there and do business together," she said.

Yeo told businessmen to combine their strength to compete globally and tap opportunities in growing markets such as China and India.

"Politically there are ups and downs but let's keep the econonomic accounts going," he said.

Bilateral ties have been strained by a series of long-running disputes since Singapore was evicted from the Malayan Federation to become an independent state in 1965, including water supplies to resource-starved Singapore, a proposed new bridge linking the two and land reclamation works carried out by Singapore.

But relations have warmed since Abdullah Ahmad Badawi took over as Malaysian prime minister from Mahathir Mohamad last October.

Singapore Business Federation secretary Cheng Wai Keong said Abdullah's new emphasis on small and medium-sized enterprises, and the services and agriculture industries had spurred renewed interest for investment in Malaysia.

Cheng said Malaysia's ringgit peg of M$3.80 to the (US)dollar, fixed since 1998, provided stability to manufacturers but there must be a more flexible exchange rate regime in the long-term.

"At present, it provides stability to manufacturers but over the long-term, a flexible exchange rate must be the target," he added.

Despite the political strains and economic competition between the two neighbours, there are close business and trade links.

Rafidah said bilateral trade last year reached M$100.1 billion and stood at M$26 billion in the first quarter this year.

Singapore companies invested M$8.1 billion in Malaysia's manufacturing sector between 1998 and 2003, while Malaysian firms invested M$13.8 billion in Singapore between 1996 and 2003, she said.

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