S. Korea`s financial markets rattled by won`s sharp decline

(ATTN: RECASTS headline, lead; UPDATES with more info throughout)
SEOUL, March 2 (Yonhap) -- The South Korean financial markets were heavily
pounded on Monday as the local currency dipped to an 11-year low against the U.S.
dollar amid dollar shortage concerns, sending the key stock index sharply lower,
analysts said.
The Korean currency closed at 1,570.3 won to the greenback, down 36.3 won or 2.31
percent from the previous session's close and the lowest level since March 1998
when South Korea was in the midst of the Asian financial crisis. The won flirted
with the 1,600-won mark at one point, with its value dipping 19.8 percent against
the dollar so far this year.
"The pace of the won's tumble was quite excessive. Given the globally strong
dollar, foreign investors dumped local stocks on concerns over the global
recession and the health of the U.S. banking industry," said Jeon Seung-ji, a
currency analyst at Samsung Futures Inc.
The benchmark Korea Composite Stock Price Index (KOSPI) tumbled 4.16 percent, hit
by losses in U.S. markets and the won's weakness. Foreign investors continued
their selling spree of local stocks for the 15th straight session, dumping a net
413.1 billion won (US$265 million) of Seoul stocks on the main bourse.
A string of downbeat news at home and abroad has weighed on the local financial
markets. Speculation over a capital outflow of foreign investors in March and
rising default risks in some Eastern European countries, compounded by a
lingering North Korean missile threat, have been putting downward pressure on the
won.
The U.S. government said Friday it will boost its stake in troubled Citigroup
Inc. to up to 36 percent by converting its preferred stocks to common shares,
which analysts say may be a model for other ailing financial firms.
The news that the country posted a trade surplus of $3.3 billion in February on a
sharp decline in imports did little to stem the won's sharp slide, market
watchers say. South Korea's exports fell 17.1 percent on-year to $25.8 billion
while imports nosedived 30.9 percent to $22.5 billion.
"The trade data seemingly looked good. But if you carefully look at them, there
were no new orders for ships, which would help put downward pressure on the local
currency," Jeon added. Shipbuilders usually unload dollar forwards in the market
ahead of receiving future earnings, which would stem the won's weakness.
Analysts say March will become a critical month for the won's value because
factors surrounding the local currency markets are exerting downward pressure on
the local currency.
Foreign investors will begin to repatriate dividends to their home countries and
local banks are expected to repay about $10 billion in foreign debt maturing this
month.
According to the government, foreign debt owned by local banks and foreign
branches reached $92.6 billion as of the end of January, and $38.3 billion in
overseas debt will mature this year.
"Throughout March, the local currency market will likely continue to see jitters
until concerns over the so-called March crisis are dispelled," said Kim Jae-eun,
an economist at Hana Daetoo Securities Co.
Stock analysts said the stabilization of the currency market would be essential
for the stock index to gain some momentum.
"The Seoul stock market showed some panic similar to that seen in last October or
November. I think until mid-March, the KOSPI will likely trade weaker, "said Bae
Sung-young, an analyst at Hyundai Securities Co. "Only after the foreign exchange
market stabilizes, the local bourse will likely gain some ground."
sooyeon@yna.co.kr
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