U.S. bailout plan to help stabilize Korean financial markets: BOK

SEOUL, Sept. 22 (Yonhap) -- South Korea's central bank said Monday the local financial markets are expected to stabilize gradually following the U.S. government's US$700 billion plan to rescue the financial sector.

The U.S. Congress is set to vote on the Treasury's proposal to buy bad assets
from banks in a move to calm U.S. financial market jitters. Last week's collapse
of Lehman Brothers Holdings Inc., once the U.S. No. 5 investment bank, sent a
shockwave through global financial markets.
"Short-term foreign borrowing conditions, which were severely hurt amid U.S.
financial jitters, have somewhat stabilized. Imbalance in the domestic short-term
swap markets is expected to ease gradually," the Bank of Korea (BOK) said in a
statement.
According to the BOK, the premium on South Korea's credit default swaps (CDS)
sharply fell to 1.59 percentage points as of Friday, compared with 1.78
percentage points on Thursday.
The spread on credit default swaps, a leading indicator of the premium on
currency bonds, is the cost of hedging credit risk on South Korean government
debt.
The BOK said overseas borrowing conditions for local financial institutions are
expected to improve as the premium on the country's CDS sharpy declined.
"The central bank will strengthen its monitoring of global and domestic financial
market situations by closely watching the effect of the bailout plan," it added.
On the back of the rescue plan, the local currency was trading at 1,127.70 won
against the U.S. dollar as of 10:03 a.m., up 12 won from Friday's close.
sooyeon@yna.co.kr
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