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Sun, Oct 19, 2008 - Page 10 News List

Won rebounds after biggest drop in a decade

BLOOMBERG

The South Korean won rebounded on Friday, following the biggest drop in a decade on Thursday, on speculation the government will prop up confidence in financial markets. The Indonesian rupiah and Thai baht gained.

The won snapped a two-day slide, paring this year’s loss to 29 percent after the Bank of Korea said it would trade directly with banks in the swap market to help boost foreign currency liquidity. The government needs to raise spending and cut taxes to shelter the economy from the global turmoil, Finance Minister Kang Man-soo said on Friday.

“The move by the central bank provided a psychological boost to the currency market,” said Kim Sung-soon, a currency dealer with state-run Industrial Bank of Korea in Seoul. “The unrest remains though, as we all are not sure of how this global turmoil will pan out in the months ahead,” Kim said.

The won rose 2.9 percent to 1,334 per dollar in Seoul on Friday, Seoul Money Brokerage Services Ltd said. The rupiah advanced 0.7 percent to 9,810 in Jakarta, from 9,875 on Thursday, data compiled by Bloomberg showed.

The won has lost 8.3 percent this month as banks and companies scramble for dollars to service debt, while global turmoil in financial markets makes overseas borrowings even more expensive.

The change in the trading system will “help ease the recent market jitters in the foreign-currency money market,” the Seoul-based Bank of Korea said in a statement on Friday. Currently, the central bank trades first with intermediary banks, which then trade with local banks.

Kang and other policymakers held an emergency summit yesterday, seeking steps to restore confidence in the economy after stocks plunged to a three-year low. The Kospi share index tumbled 2.7 percent on Friday, extending this year’s loss to 38 percent.

South Korea’s foreign reserves fell for a sixth month last month to US$239.7 billion, from US$243.2 billion in August, after authorities provided dollars in the swap market to boost liquidity and help stem the won’s drop.

The rupiah posted its first weekly gain in a month as the central bank sold dollars to limit losses.

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