S. Korean won soars on financial stabilization measures

(ATTN: UPDATES 2-3 paras with closing figures; ADDS analyst comments in last 3 paras)
SEOUL, Oct. 20 (Yonhap) -- South Korea's currency jumped against the U.S. dollar
on Monday as investor sentiment was lifted by the recently-announced government
measures to ease a liquidity crunch and stabilize the financial sector, dealers
said.
The local currency closed at 1,315 won to the greenback, up 19 won from Friday's
close. The won remained volatile as it surged to as high as 1,230 won in early
trading before the ascent was pared on increased dollar demand from foreign
investors who dumped a net 347 billion won (US$264 million) worth of local shares
on Monday.
"Market players seem to view the government's rescue plan as positive in
general," 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 investments were 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, losing about 25 percent since the start of this year. The nation's
benchmark has lost more than 35 percent so far this year, though it closed up
2.28 percent on Monday.
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.
Analysts, however, say that such government measures might not be enough to calm
market jitters and the won will likely decline for a considerable period of time
given financial and economic conditions at home and abroad.
"The won is expected to stay on its downward move at least until the end of this
year as there are many negative factors affecting the market," said Jeon
Seung-ji, a currency analyst at Samsung Futures Inc.
"The fallout from the financial turmoil will likely to weigh on investor
sentiment in months to come and exports and domestic demand could be affected by
a worldwide economic slowdown. They all will serve as downside factors on the
local currency," Jeon added.