Currency rebounds from 10-year low on intervention

SEOUL, Oct. 9 (Yonhap) -- The South Korean won bounced back from a decade low against the U.S. dollar Thursday, marking the first gain in five sessions as foreign exchange authorities intervened and the local stock market recouped earlier losses.

The local currency closed at 1,379.50, up 15.5 won from Wednesday's close. The
won fell to as low as 1,485.55 at one point during the morning session, the
weakest since March 1998. On Wednesday, the won lost almost 5 percent.
"Companies came forth with dollar selling bids as foreign exchange authorities
intervened," said Kwon Woo-hyun, a currency dealer at Woori Bank. "For the time
being, the market is likely to face extreme volatility."
Dealers said that authorities unloaded an estimated $2 billion during the
session. A rebound in the local stock market also eased demand for the greenback,
they said.
The KOSPI, the country's key stock index, finished up 8.2 points at 1,294.89. The
index fell nearly 1 percent in the morning session, but gained ground after the
central bank unexpectedly cut its key interest rate by a quarter percentage point
to 5 percent.
The Bank of Korea (BOK) joined in a round of rate cuts worldwide aimed at easing
turmoil in global markets.
The decision came after the BOK's counterparts in the United States, Europe and
China cut their rates by between 25 and 50 basis points on Wednesday in an
attempt to grapple with the worst financial crisis in decades.
The won has slumped as foreign investors have continued to withdraw from the
local stock market and the country's trade balance has worsened. The currency has
lost about 33 percent against the dollar this year.
Kim Jong-chang, governor of the Financial Supervisory Service, said the market is
"overly" concerned about the currency movement. "The won's recent drop is
'overshooting' to some degree. Liquidity conditions are not bad at this point,"
Kim said in a meeting with reporters.
It will take some time to muddle through the financial rout, but there is only a
slim chance that local banks and companies will face a liquidity problem, he
said.
South Korea's key index fell to a 26-month low on Wednesday, and has fallen more
than 30 percent this year. The country is expected to 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.
A global credit crunch has created a dollar liquidity shortage for local banks
and importers, further fanning demand for the greenback.
Experts said that increased concerns over an economic slowdown will continue to
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 said on the same day that
global financial woes may cause the country to fall short of its economic growth
target of 4.7 percent.