(LEAD) (News Focus) S. Korean won expected to continue fall against dollar

SEOUL, Oct. 7 (Yonhap) -- The South Korean won is forecast to lose further ground, possibly breaching the 1,400-won mark, as a global credit crisis dampens exports and a slumping stock market accelerates capital flight, experts said Tuesday.

The local currency closed at 1,328.10 won to the greenback, a plunge of 59.10 won
from the previous session's close. At one point, the won touched 1,350.00, its
lowest since April 6, 2001. It fell 5 percent on Monday.
"Market players are extremely nervous as the crisis seems to be spreading fast,"
said Park Seong-chul, a currency dealer at Woori Bank. "There is little dollar
selling out there in the market."
The won, which has already lost 30 percent against the dollar so far this year,
will weaken to the 1,400 level, dealers said. The last time the currency breached
that level was in 1998 in the midst of the Asian financial crisis, when the won
lost half of its value.
Jun Seung-ji, a currency strategist at Samsung Futures Co., said despite a series
of market stabilization measures, investors are panicking and are concerned that
a financial rout will affect the real economy.
"A crash in the global stock market and concerns over the credit crunch are
stoking strong demand for the dollar," he said. "The won will breach the 1,400
level any time soon."
Experts say that market participants seem to have lost trust in the government's
pledge to stabilize the currency market, which fuels additional dollar buying.
Earlier in the day, Deputy Finance Minister Shin Je-yoon reiterated the
government's earlier pledge to provide sufficient foreign-exchange liquidity into
the local financial system when necessary.
South Korea's currency market has been suffering from a dollar shortage as banks
and companies are rushing to the safer greenback on concerns over a financial
crisis sparked by the collapse of investment bank Lehman Brothers Holdings Inc.
The Finance Ministry recently announced that it will inject a total of $10
billion into the nation's won-dollar swap market to provide liquidity amid
tightening credit conditions. The government has spent almost $25 billion since
March to support the won.
Experts said that increased concerns over an economic slowdown, coupled with the
increased current account deficit, will prod market participants to scramble
towards dollar buying.
On Tuesday, Finance Minister Kang Man-soo said that global financial turmoil is
beginning to hurt the economy. The finance ministry also said on the same day
that global financial woes may cause the country's economic growth for the year
to fall short of its yearly target of 4.7 percent.
South Korea may post a $6 billion trade deficit in 2008, Knowledge Economy
Minister Lee Youn-ho said Monday. The shortfall amounted to $14.2 billion for the
first nine months of this year.
"The local financial markets are jolted because of concerns that real economic
activities will be in a slump due to the global financial rout," said Song
Jeong-tae, a researcher at LG Economic Research Institute.
Deputy Finance Minister Shin said the won will stabilize as the country is
expected to post a current account surplus for this month. He added that local
financial markets reacted too sensitively to the recent financial turmoil.
Deepening turbulence in global financial markets will also prompt investors to
steer clear of emerging-market assets, experts said.
The country's key stock index, KOSPI, is down 30 percent this year as foreign
investors continued to sell off local shares.
"A technical rebound may be possible, but it will take a long time to begin
heading back on an upward path," said Yoon Se-wook, a senior analyst at Meritz
Securities. "Any meaningful rebound will only take place when the U.S. market
stabilizes."