S. Korean won soars on financial stabilization measures

(ATTN: ADDS details, dealer's comments throughout)
SEOUL, Oct. 20 (Yonhap) -- South Korea's currency jumped against the U.S. dollar on Monday as investor sentiment was lifted by the government's sweeping measures to ease a liquidity crunch and stabilize the financial sector, dealers said.

The local currency traded at 1,311.3 won to the greenback as of 10:30 a.m., up
22.7 won from Friday's close, after rising as high as 1,230 won at one point. The
early ascent was pared due to a downturn in the nation's stocks and continued
sell-off by foreign investors of South Korean shares.
"Market players seem to view the government's rescue plan as positive," JP Morgan
Korea chief economist Lim Ji-won said. "But those measures including state debt
guarantees have been widely expected and it still remains to be seen whether they
will translate into a long-term stabilization."
On Sunday, the government unveiled sweeping measures aimed at providing
three-year state guarantees for banks' foreign debts worth up to US$100 billion
and injecting $30 billion into dollar-starved banks and companies. Tax benefits
for long-term stock investment was also included to prevent "fund run" from the
local bourse.
The latest market stabilization moves come as banks and financial institutions
face difficulty in securing dollars to refinance debts and carry out business
deals amid tightening credit conditions.
The already-tough lending conditions recently took a nasty turn following the
collapse of global investment banks last month, prompting financial institutions
to stay away from lending dollars to each other for fear that the worst is not
yet over.
South Korea's won has been one of the worst-performing currencies among Asian
countries. The Korean won has lost about 25 percent since the start of this year.
Volatility was intensifying on spreading concerns over the dollar shortage, while
the nation's benchmark stock index tumbled to a three-year low at the end of last
week.
The government rushed to stabilize its financial system by injecting more
liquidity and help banks and exporters easily secure drying-up dollars. Earlier
this month, the government announced a $15 billion worth of dollar supply into
the banking sector.
Last week, the nation's central bank also announced that it will adopt an open
bidding system for won-dollar swaps aimed at helping financial institutions
secure dollars more easily and those most in need secure the foreign currency.
The auction with eased rules will be held on Tuesday.
kokobj@yna.co.kr