"We call on the public to remain calm amid these rumors of destabilization," Arroyo said in a speech to members of an elite Army unit at a training camp north of Manila.

"I acknowledge the existence of legitimate grievances among the young officers in the armed forces," she said.

"The expression of their grievances so far as I have seen has been proper and lawful."

Amid rumors that a military clique is plotting to overthrow the government, the peso fell to a four-month low against the dollar on Wednesday, when it closed local trading at 54.025 to the greenback.

It lost more ground in early trade Thursday, falling to 54.23 pesos. But after Arroyo and the central bank reassured the market, it rallied to close at 53.95, the unit's intra-day high.

Central bank governor Rafael Buenaventura insisted the unit's weakness was due to "seasonal factors" as well as the general movement of Asian currencies against the greenback.

Arroyo said she met with a group of disaffected junior officers at Malacanang presidential palace over dinner late Wednesday.

"They assured me of absolute fealty. We are acting on their grievances and I do not blame the young officers for pushing for internal reforms," she added.

Military officials earlier said the junior officers had been complaining over low pay, corruption, and inadequate housing facilities for soldiers.

The Philippines suffered seven bloody coup attempts in the late 1980s, setting back economic development for years.

WAR.WIRE