Korean Won Set for Worst Quarter Since 1997; U.S. Plan Rejected

By Bob Chen

Sept. 30 (Bloomberg) -- South Korea's won dropped to its lowest level in more than five years after the House of Representatives rejected a $700 billion U.S. financial rescue plan to bail out the banking system.

The won fell for a sixth day, headed for its worst quarterly performance 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 index of shares declined by the most in two weeks.

``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 slumped 2.4 percent to 1,217.85 versus the dollar as of 10 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency touched 1,235.00, the weakest level since April 2003, and is down more than 14 percent this quarter.

The U.S. House rejection of the biggest government intervention in the markets since the Great Depression dealt another blow to government efforts to contain a lending crisis.

Citigroup Inc. agreed to buy the banking operations of Wachovia Corp. for about $2.16 billion in a deal that the Federal Deposit Insurance Corp. helped broker.

To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.