Korean Won Slides to Four-Year Low as Refiners, Foreigners Sell

By Kim Kyoungwha and Judy Chen

Aug. 22 (Bloomberg) -- South Korea's won slumped to the weakest level in almost four years on speculation government intervention won't halt the currency's slide as refiners buy dollars to import oil and overseas investors sell local stocks.

The won fell as much as 0.8 percent to 1,063 against the dollar, the weakest since December 2004. It rallied as much as 0.7 percent earlier today after the central bank bought the local currency, according to Sam Hong, a Seoul-based currency trader at Shinhan Bank, a unit of South Korea's second-biggest financial group.

``The government's action is not strong enough to stop the won's slide,'' said Lee Yoon Jin, a currency dealer at state-run Korea Development Bank in Seoul. ``There have been a lot of purchases of the dollar from the local energy companies.''

The won slid 0.72 percent to 1,062.5 per dollar as of 3 p.m. in Seoul, having earlier climbed as high as 1,048, according to Seoul Money Brokerage Services Ltd. It's dropped 4.8 percent this month, the biggest decline among Asia's 10 most-active currencies excluding the yen.

Korea's government continues to ``closely'' monitor the currency for ``drastic'' fluctuations, Vice Finance Minister Kim Dong Soo said on Aug. 20. The nation's foreign-currency reserves dropped $10.58 billion in July to $247.52 billion, a fourth straight monthly decline, as policy makers tried to halt a slide in the won. Central banks intervene in currency markets by selling or buying foreign exchange.

Stock Losses

The won slid 2.1 percent this week, declining for a fourth consecutive time. Demand for the currency slumped as overseas investors sold 1,226 billion won ($1.15 billion) more shares than they bought, trimming their holdings on all but one of the five trading days, according to stock exchange data.

The Kospi index fell every day this week, sliding 4.8 percent to close at 1,496.91. That's the first time it's been below 1,500 since April 2007.

Crude oil climbed for a fourth straight day to $121.52 a barrel in New York, heading for its biggest weekly increase in more than two months. Higher import costs fueled demand for dollars from refiners. South Korea imports all of the fuel it uses and is the world's fifth-largest buyer of oil. The commodity has rebounded almost 10 percent from a 15-week low of $111.34 it touched on Aug. 15.

Government bonds fell, ending a three-day gain, after the surge in crude prices spurred concern inflation will quicken.

The yield on the 5.25 percent note due March 2013 rose 9.4 basis points to 5.85 percent, according to Korea Exchange. The price fell 0.32, or 32 won per 10,000 won face amount, to 100.01. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net