S. Korean won plunges on share setback, lingering financial woes

SEOUL, Oct. 22 (Yonhap) -- South Korea's currency tumbled against the U.S. dollar
on Wednesday as investor sentiment was hurt by plunging stocks and continued
foreign sell-off of local shares, dealers said.
The local currency closed at 1,363 won to the greenback, down 42.9 won from
Tuesday's close, after falling at one point to as low as 1,400 won. The Korean
currency lost ground for a second day after a brief surge on Monday boosted by
the government's recently-announced measures to stabilize financial markets.
"Global dollar strength caused most Asian currencies to lose ground," said Jeon
Seung-ji, a currency analyst at Samsung Futures Inc. "The won's descent was
especially bigger than others due to plunging stock markets and continued selling
of Korean shares by foreign investors."
South Korea's benchmark KOSPI nosedived 5.14 percent to close at 1,134.59.
Foreign shareholders dumped a net 363 billion won (US$266.3 million) worth of
local shares, increasing demand for dollars as they sought to exchange the
proceeds into the greenback.
"Currency trading has become so thin these days that foreign selling on such a
scale in the stock markets can take a heavy toll on the won-dollar exchange
rate," Jeon said.
According to data, an average of US$9.7 billion dollars changed hands daily this
year, but trading recently fell to about $2.5 billion amid concerns over a
prolonged financial crisis.
On Sunday, the government unveiled a $130 billion bailout package aimed at
providing state guarantees for bank's foreign debts and easing a dollar-funding
shortage in the financial system.
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.
Already tough lending conditions recently took a nasty turn following the
collapse of several 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.
Earlier in the day, Finance Minister Kang Man-soo told parliament that South
Korea's economy faces tougher times than it did a decade ago, when it was hit by
an Asia-wide financial crisis.
The won has been one of the worst-performing currencies among Asian countries,
losing 32 percent since the start of this year. The KOSPI has also tumbled around
40 percent this year.
A sliding won is a major headache for policymakers whose top priority is to keep
inflation in check. A weak currency puts upward pressure on the nation's
already-high inflation by making imports costlier.
In September, South Korea's consumer prices jumped 5.1 percent, easing from a 5.9
percent advance in July, the highest in almost 10 years thanks to recent oil
price declines. South Korea depends mostly on oil imports for energy consumption.
"Recent oil price drops raised hopes that inflation might stabilize in months to
come. But the currency issue has emerged as a new headache for the government as
the sliding won will likely offset the effect of the price declines," said Shin
Jin-ho, a currency analyst at Woori Futures.