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Mon, Dec 11, 2006 - Page 10 News List

Won's unexpected sharp rise hurting South Korean firms

AFP , SEOUL

South Korean companies are being seriously squeezed by the won's rise as the appreciation of the local currency is greater than they had expected earlier this year, businessmen and analysts said.

The won, which gained nearly 2 percent this month to a nine-year high against the dollar, appeared to be unstoppable on its upward swing until financial authorities intervened on a massive scale on Friday.

Following the intervention, the won dropped 0.7 percent against the greenback to close at 920.30 won on Friday, up 6.50 won from the previous day.

"Thanks to the massive intervention, the market stabilized considerably. The government must have shelled out some US$1.5 billion on Friday," a dealer with Kookmin Bank said.

It was the largest sum of intervention this year, but its impact was dulled considerably as exporting companies and banks seized on the chance and sold their backed-up dollars en masse.

The won's rise was also dampened by news reports that top officials of the central Bank of Korea and the finance ministry met on Friday to discuss ways to curb the won's appreciation.

The Bank of Korea and the government also attempted to talk down the won's strength.

Central bank Governor Lee Seong-tae said last week that the bank's policy makers "considered and discussed" the foreign exchange rate.

Finance and Economy Minister Kwon O-kyu went a step further, saying the government would conduct "smoothing operations" to check the won's advance if necessary.

Kwon conceded that the country's exports-driven economy is under pressure from the won's rise.

The central bank last week cut its economic growth target for next year from 5 percent to 4.4 percent amid sluggish private consumption and investment.

The local currency, which closed at 928.60 won a week earlier, had kept on rising against the greenback for seven consecutive trading days, reflecting the global weakness of the US currency and speculative demand for the won.

The won has gained nearly 10 percent against the dollar so far this year, making South Korean products more expensive abroad and depressing most of South Korean manufacturing companies relying on exports.

The won's strength seriously dented manufacturing firms' bottom lines this year. The operating profits of listed manufacturing firms fell 10.6 percent year on year in the first nine months of the year, the Korea Stock Exchange said.

The ratio of operating profits on sales slumped 1.33 percentage points to 6.78 percent.

Samsung Economic Research Institute said exporting companies set their break-even exchange rates at 949 won in the case of automakers, machineries at 999 won and chemical products at 905 won.

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