Asian Currencies Fall, Led by Won, as Bank Rescue Plan Rejected

By Anil Varma and Bob Chen

Sept. 30 (Bloomberg) -- Asian currencies declined, with South Korea's won falling to its lowest in more than five years, after U.S. lawmakers rejected a $700 billion financial rescue plan to bail out the banking system.

The won completed its worst quarter since the Asian financial crisis in 1997, after Lehman Brothers Holdings Inc. collapsed, American International Group Inc. was nationalized and Merrill Lynch & Co. was acquired by Bank of America Corp. Korea's Kospi stock index slumped 13 percent in the three months, the most since March 2003, as the deepening credit crisis spurred investors to sell emerging-market assets.

``We'll see broad-based Asian currency weakness,'' said Mitul Kotecha, global head of foreign-exchange strategy at Calyon in Hong Kong. ``The weakness in equities results in further outflows from equity markets among foreign investors.''

The won fell as low as 1,230 versus the dollar, the weakest since April 2003, according to Seoul Money Brokerage Services Ltd. It was down 1.5 percent at 1,207 at the 3 p.m. close of trading in Seoul. The currency slumped 13 percent this quarter.

The rejection by U.S. lawmakers yesterday of the biggest government intervention in markets since the Great Depression may lead to more bank failures worldwide. The bill would have allowed the government to buy troubled assets from financial companies, which have reported losses and writedowns of $591 billion due to the collapse of the U.S. subprime mortgage market. Federal Reserve Chairman Ben S. Bernanke warned of ``grave threats'' to the financial system if Congress rejected the plan.

Taiwan Dollar

Taiwan's dollar had the worst quarter since 1997 on concern increasingly risk-averse investors are pulling out of emerging markets. Taiwan's Taiex stock index tumbled 3.6 percent to 5,719.28 today, capping a 24 percent drop for the quarter. Its close of 5,641.95 on Sept. 18 was the lowest since October 2005.

The local currency fell as much as 1 percent today to NT$32.368 against the U.S. dollar, the lowest level since Jan. 24, before trading down 0.3 percent at NT$32.13, according to Taipei Forex Inc. The currency lost 5.5 percent this quarter.

Taiwan's financial regulator said late yesterday that it placed temporary limits on short-selling of stocks ``to maintain market stability and boost investors' confidence'' after the Standard & Poor's 500 Index fell the most since the 1987 crash and the Dow Jones Industrial Average plunged the most ever.

Short sellers borrow stocks and sell them, betting the price will fall and they will be able to buy them back later, return them to the lender, and pocket the difference in price.

The Philippine peso fell for a fourth day as Asian stocks extended the worst global equities sell-off in 21 years. The MSCI Asia Pacific Index has slumped 32 percent this year as deteriorating confidence in global credit markets caused the world's financial institutions to report losses and asset writedowns of more than $590 billion.

`Risk Averse'

``The bailout hasn't happened and it's making people more risk averse,'' said Jonathan Ravelas, a strategist at Banco de Oro Unibank Inc. in Manila. ``That, plus the month-end dollar requirement of companies, is pushing the exchange rate higher.''

The peso weakened 0.2 percent to 47.04 per dollar, according to Tullett Prebon Plc.

Malaysia's ringgit rounded off a second month of losses.

``Risk aversion and flight to safety will dominate, and that means almost everyone will be getting out of emerging markets for a while,'' said Awaluddin Shariff, a currency trader at EON Bank Bhd. in Kuala Lumpur. ``The ringgit is heading for weaker levels'' unless a U.S. bank bailout is approved, he said.

The ringgit fell 1.4 percent this month to 3.4407 versus the dollar, according to data compiled by Bloomberg. The currency touched 3.4595, the weakest level since Sept. 19.

Elsewhere, the Singapore dollar gained 0.6 percent to S$1.4260 against the U.S. currency and the Thai baht rose 0.5 percent to 33.86. Vietnam's dong was unchanged at 16,600.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.