Calm urged amid won's freefall against dollar

SEOUL, Oct. 7 (Yonhap) -- South Korea's finance minister urged participants in the local currency market Tuesday to respond "rationally" to sharp fluctuations of the won's value against the U.S. dollar.

The call came after the Korean currency nosedived by as much as 71 won in morning
trading and hovered at the 1,340 won range to the greenback, raising concerns
over a financial crisis. It is the first time since early April 2001 that the won
has fallen to such a low level.
"There is no need for market participants to panic over short-term fluctuations,"
Finance Minister Kang Man-soo told lawmakers during a parliamentary audit
session.
"The depreciation of the South Korean won is inevitable because overall
conditions are very difficult, but if things stabilize the exchange rate may head
in the opposite direction," he said.
The value of the Korean won against the greenback has been so volatile because
the country's trade balance switched to a deficit of over US$14.24 billion in the
first nine months of this year from a surplus in 2007, the minister said.
Also responsible is the outflow of foreign funds invested in South Korean bonds,
he said.
Kang added that South Korea, Japan and China are making arrangements to head off
any foreign exchange crisis at the ministerial level, but did not elaborate.
With the won plunging against the dollar, officials said the government is
considering injecting $10 billion from the nation's dollar reserves into the
foreign exchange swap market in an effort to address a possible liquidity crunch.
The Finance Ministry, meanwhile, predicts that the local currency will firm up
against the greenback once the country starts to post a trade surplus.
The government expects the nation's trade balance to revert to a surplus in the
fourth quarter, reducing the yearly deficit to around $6 billion.
yonngong@yna.co.kr