ACCRA (Reuters) - Ghana's share index is set to rise over 25 percent in 2010 as interest rates fall and business picks up before an expected oil boom, according to a Reuters survey.

Although frontier investor interest has been piqued in a West African country set to become the world's fastest growing next year, low liquidity means foreign funds remain largely on the sidelines.

Ghana's All-Share index, which dropped nearly 50 percent in 2009 after being one of the world's top performers in 2008, is up over 14 percent so far this year.

That compares to around 25 percent for Nigeria, 33 percent for Kenya and 8 percent for Abidjan-based West African regional bourse BRVM.

"The market is fairly valued versus its emerging market peers, yet with inflation and interest rates coming down, the stock market provides an increasingly attractive investment case," said Ashley Bendell of frontier brokerage house Exotix.

He forecasts a rise in the Ghana All-Share Index of around 30 percent through 2010 to 7,250 with a similar rise next year, when oil production is set to give the country of 23 million a growth rate estimated at 20 percent.

The median of six forecasts in a Reuters survey conducted July 26-28 was for a 27 percent rise.

Inflation dropped to single digits in June for the first time since mid-2006, allowing a cut in the central bank's main policy rate to 13.5 percent.

FALLING RATES

The yield on the 3-month T-bill has fallen from well over 20 percent at the start of the year to below 13 percent, pushing local investors back towards stocks.

"Money market rates will reduce further which provides better opportunities," said Robert Rhule, investment officer of Prudential Securities.

Additional impetus comes from deregulation of the pension industry.

This allows employers to set up schemes to be managed by private fund managers instead of the state pension fund SSNIT -- a top shareholder in many listed firms but one that trades little -- helping crimp volumes.

"Our new pension plan implementation definitely has a positive impact on the market this year and next year," said Collins Appiah of Gold Coast Securities.

The big problem for foreign investors is the lack of liquidity.

Turnover on Ghana's stock exchange on Tuesday, a typical day, was less than $380,000 -- certainly higher than it has been but a fraction of the more than $29 million on Nigeria's stock exchange, itself barely a couple percent of the volumes seen in Johannesburg, Africa's biggest exchange.

"In Ghana we're starting to see liquidity coming back," Sharat Dua, who helps run Charlemagne Capital's $60 million Africa fund, told Reuters recently. "We see the opportunity there."

But his fund normally seeks daily turnover of at least $300,000-400,000 in a single security before investing. Others have even more stringent rules.