(3rd LD) Korean won tumbles against U.S. dollar on Lehman debacle

(ATTN: ADDS with more response from central bank, corporate sectors from para 14)

SEOUL, Sept. 16 (Yonhap) -- The South Korean currency tumbled against the U.S.
dollar Tuesday on deepening woes over economic instability following the collapse
of Lehman Brothers Holdings Inc., once America's fourth-largest investment bank,
dealers said.

The local currency ended at 1,160 won to the dollar, the lowest in 49 months and
down 50.9 won from Friday's close. South Korea's financial market was closed on
Monday for the fall harvest holiday.

Tuesday's slide marked the largest one-day drop since August 1998, just months
before the nation was hit by the Asian financial meltdown. The won has lost more
than 20 percent versus the greenback so far this year.

"Lehman's collapse seemed to come as a shock to many investors here,"
said Oh Suk-tae, an economist at Citibank Korea Inc. "Not just the currency
market but the overall financial sector is undergoing fluctuations which will
likely continue until the jitters on Wall Street subside."

On Monday, the 158-year-old Lehman filed for bankruptcy protection due to
ballooning losses from its soured real estate holdings, sending shock waves
across the global financial sector.

Lehman has strived in vain to find partners able to provide a lifeline following
the worst global credit crunch in decades. South Korea's state-run Korea
Development Bank recently withdrew its bid to buy the embattled investment bank,
dealing a further blow to the already-staggering company.

The report on Lehman coincided with the announcement that another struggling
investment giant, Merrill Lynch & Co., will be taken over by Bank of America,
while insurer AIG has reportedly turned to the Federal Reserve for a bridge loan
to help fund sales of its assets.

U.S. and Asian markets were sharply rattled, though many of the latter were
closed for holidays on Monday. The Dow Jones industrial average dived 4.42
percent and the tech-dominated Nasdaq composite index lost 3.6 percent.

South Korea's key stock index also lost significant ground, nose-diving 6.1
percent as investors went on a selling spree, spooked by possible damage from the
Lehman collapse on local financial firms. According to industry sources, Korean
financial companies' exposure to Lehman and Merrill amounted to US$720 million
each.

Government officials rushed to soothe investors over their concerns about
possible ramifications from the collapse.

Vice Finance Minister Kim Dong-soo earlier told reporters there might be a risk
that Lehman's bankruptcy filing will have an impact on global stock and bond
markets, but he said that "in the longer term, it could contribute to an
easing of the credit crunch by quickly removing market instability."

In a statement, the Finance Ministry said it will keep a close eye on financial
markets and seek cooperation with foreign financial authorities to craft
"appropriate" countermeasures.

On Monday, Rhee Chang-yong, vice president of the Financial Services Commission,
said that the bankruptcy protection filing by global investment bank Lehman will
have a "limited" impact on South Korea's financial market.

The Bank of Korea also said that there is no fear of foreign investors selling
their holdings en masse.

The central bank added that the fact that many foreign investors have shed their
domestic holdings in the past few months has effectively cushioned the South
Korean market from a sudden jolt, since those that have stayed will probably keep
their stocks and bonds as a means to diversify their portfolios.

Reflecting such views, the Korea Development Bank, which postponed moves to issue
$1 billion worth of overseas bonds, stressed that it is not under any pressure,
and said it can afford to wait a couple of weeks to gauge market developments.

The state-run bank has already acquired $3.2 billion through overseas bonds,
which is roughly 80 percent of its original goal of $4.0 billion.

Others banks like Kookmin, Shinhan and Woori said they will not be directly hurt
by Lehman since they hold no derivatives or stocks in the bankrupt investment
house. They said immediate fallout may be limited to difficulty in acquiring
foreign loans and hikes in fees and interest rates for foreign currency loans.

The corporate sector also said that it will not directly feel negative effects,
since most companies rely on loans from local banks and rarely invest in
derivatives or issue foreign bonds of their own.

"Overall, there is little concern of a dollar-linked liquidity crunch, with
the real concern being that of local lenders moving to tighten management on
loans that could hurt companies," said Roh Sung-ho, chief economist at the
Institute for International Trade.

(END)