S. Korean won plunges to over 6-year low against dollar

SEOUL, Oct. 7 (Yonhap) -- The South Korean currency tumbled to an over six-year low against the U.S. dollar on Tuesday as uncertainty surrounding a global credit crunch deepened worries over foreign currency liquidity, dealers said.

The local currency closed at 1,328.1 won to the dollar, down 59.1 won from
Monday's close and the lowest level since April 12, 2002 when it finished at
1,332 won against the greenback. The won's daily loss were the biggest since Aug.
6, 1998 when the local currency fell by 70 won to the dollar.
The won has lost more than 29 percent versus the dollar so far this year, putting
upward pressure on already high inflation.
"The won's steep fall came as market participants panicked on concerns that
financial market turmoil started in the United States is spreading into Europe
and other countries," said Jeon Seung-ji, a currency analyst at Samsung Futures
Inc.
The local currency plunged to a session low of 1,350 won per dollar at one point,
but regained ground on the back of an unspecified amount of dollar selling by
foreign exchange authorities.
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 government has scrambled to calm market jitters, brushing off growing
concerns that the country may face a financial crisis similar to the one it
underwent in 1997-98.
The government repeated earlier pledges to use the country's foreign exchange
reserves as a way to provide foreign currency liquidity.
"The foreign reserves are the safest assets to liquidate immediately," said Shin
Je-yoon, deputy finance minister for international affairs, shrugging off market
concerns over the availability of the reserves.
South Korea's foreign exchange reserves, the world's sixth-largest, reached
$239.7 billion as of the end of September, down $3.53 billion from a month
earlier and marking a decline for the sixth straight month. A fall in foreign
reserves came mainly as foreign exchange authorities unloaded part of their
dollar holdings to prop up the weakening local currency in a move to fight
inflation.
South Koreans carry unpleasant memories of the Asian financial crisis in 1997
when the country received a US$57 billion bailout arranged by the International
Monetary Fund. The country's foreign exchange reserves then stood at a mere $8.87
billion while foreign investors' rushed to sell-off of Korean assets.
Market watchers said growing fears about another financial crisis are somewhat
overblown.
"It is hard to simply compare the current situation with that in 1997-98,
considering what caused the Asian financial crisis. Due to the bitter memories,
market players seemed to overreact to concerns over dollar shortages," said Kim
Jae-eun, an economist at Hana Daetoo Securities Co.
However, analysts said the local currency would be under downward pressure
against the dollar in the long term, given a widening shortfall of the current
account coupled with rising overseas debt and a selling spree of local stocks by
foreign investors.
"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."