Korean Won Falls Most in 6 Months as Stocks Plunge; Bonds Gain

By Kim Kyoungwha and Judy Chen

Sept. 16 (Bloomberg) -- South Korea's won fell by the most in six months after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in history, fueling speculation global investors will step up sales of local shares and repatriate funds. Stocks plunged and government bonds advanced.

The currency, the biggest loser among global currencies that have started trading today, approached a four-year low and the nation's Kospi stock index tumbled as much as 6.5 percent. Vice Finance Minister Kim Dong Soo said the government may provide funds to help stabilize financial markets.

``There's panic selling for the won as investors' sentiment is badly bruised by Lehman's bankruptcy,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``A global share tumble is taking a toll on the local equity market. We are not sure how far the won will drop.''

The won fell 2.8 percent to 1,141.25 against the dollar as of 10:25 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It reached 1,159 on Sept. 3, the weakest since August 2004.

Remarks this morning by Choi Jong Ku, director general of the finance ministry's international bureau, that the currency's declines are ``excessive'' did little to curb the won's loss.

Global investors sold more Korean shares than they bought every day except six since Aug. 1, according to Korea Exchange data.

``There's a concern in the short term that global stocks, bonds and currency markets will be more volatile,'' Kim said before an emergency meeting today with counterparts from the central bank and the financial regulator in Seoul. ``We will try to manage liquidity in a stable manner through measures such as open market operations.''

Bonds Advance

Local currency bonds rose for a fourth day as investors favored safer bets than equities and concern the global economy will slip into recession fueled speculation interest rates will be cut.

``There's a flurry of bids for flight to quality triggered by a slump in stocks,'' said Kong Dong Rak, a fixed income strategist with Hana Daetoo Securities Co. in Seoul. ``The central bank, albeit not immediately, could lower interest rates in coming months.''

The Bank of Korea last raised the benchmark seven-day repo rate to an eight-year high of 5.25 percent in August to curb inflation.

The yield on the benchmark bond due June 2011 fell 12 basis points to 5.53 percent, according to the Korea Exchange. The price rose 0.33, or 33 won per 10,000 won face amount, to 101.39. 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