Asian Currencies: Korean Won, Rupiah Gain as U.S. Rescues AIG

By Lilian Karunungan and Kim Kyoungwha

Sept. 17 (Bloomberg) -- South Korea's won led gains in Asian currencies as the U.S. government's rescue of American International Group Inc. eased concern that credit losses will spread, boosting demand for emerging-market assets.

Six of Asia's 10 most-active currencies outside Japan advanced as the Federal Reserve offered an $85 billion loan to cash-strapped AIG in return for an 80 percent stake in the company. The decision cooled speculation the biggest U.S. insurer would follow Lehman Brothers Holdings Inc. into bankruptcy. The MSCI Asia Pacific Index of regional stocks rose from the lowest in almost three years.

``The Fed has no choice but to rescue AIG because the repercussions will be too great,'' said Yeo Chin Tiong, head of treasury at OSK Investment Bank Bhd. in Kuala Lumpur. ``This should be positive for sentiment'' in Asian stocks and currencies, he said.

Korea's currency climbed 1.6 percent to 1,141.35 against the dollar as of 12:22 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The advance reduced this year's loss to 18 percent. The Indonesian rupiah gained 0.6 percent to 9,393 in Jakarta, according to data compiled by Bloomberg.

Central banks in Japan and Australia injected $22.4 billion into their financial systems amid ongoing efforts to calm markets.

The Bank of Japan pumped 2 trillion yen ($18.9 billion) and the Reserve Bank of Australia added the equivalent of $3.45 billion. Global central banks have added more than $200 billion since the beginning of the week.

Asia's Worst

The Korean currency, Asia's worst performer this year, rose as the nation's Kospi share index jumped 2.5 percent after a loss of 6.1 percent yesterday, the most in 13 months. Policy makers in Korea said the government may provide cash to help stabilize markets that slumped in the wake of Lehman Brothers bankruptcy filing and as AIG sort capital.

``With the talk of an AIG rescue, risk appetite is reviving somewhat, lending support to the won,'' said Kim Yule, a currency dealer with BNP Paribas in Seoul.

The won fell the most since August 1998 yesterday as global investors accelerated sales of Asian equities.

Indonesia's rupiah rose by the most in more than a week.

``There's less risk aversion to regional markets and we should see foreign funds holding off some of the selling,'' said Enrico Tanuwidjaja, an economist at Oversea-Chinese Banking Corp. in Singapore. ``The central bank has also been in the market defending the currency.''

The currency yesterday reached 9,550, the lowest since August 2007.

Bank Indonesia yesterday cut its overnight lending rate by 2 percentage points to 10.25 percent to ensure liquidity in the banking system. It also raised the rate it pays to banks for placing funds with it to 8.25 percent, a move that ``should support the rupiah,'' Tanuwidjaja said.

Less Edgy

The Philippine peso rose, snapping two days of losses, as the Philippine Stock Exchange Index advanced for the first time in seven days.

``The AIG development means there's a pullback in risk aversion,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte Ltd. ``Investors probably are less edgy and less skittish now. We see the bets against the peso reversing out.''

The currency rose 0.5 percent to 47.015 in Manila, from 47.24 late yesterday, according to Tullett Prebon Plc.

Elsewhere, the Singapore dollar was little changed at S$1.4354 against the U.S. currency. The Thai baht gained 0.3 percent to 34.16. Taiwan's dollar traded at NT$32.07, unchanged from yesterday. Malaysia's ringgit was at 3.4488 compared with 3.4457. Vietnam's dong dropped 0.2 percent to 16,620.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net