Asian Currencies: Korean Won, Thai Baht Fall on Credit Concern

By Lilian Karunungan and Bob Chen

Oct. 2 (Bloomberg) -- South Korea's won and the Thai baht declined on speculation a seizure in global credit markets will prompt investors to cut holdings of emerging-market assets.

The Singapore dollar and the Taiwan dollar also weakened as Asian stocks declined on concern the U.S. Senate's approval of a $700 billion rescue package won't prevent further finance industry collapses. Kookmin Bank, South Korea's largest, and its three closest rivals had the outlook for their bank financial strength ratings cut yesterday to ``negative'' from ``stable'' by Moody's Investors Service.

``The downgrade of the credit outlook for Korean banks overnight, that's probably going to cause some short-term concerns for dollar funding for Korea in the near term.'' said Han Sia Yeo, a Singapore-based foreign-exchange strategist at Bank of America Corp. ``That'll keep some pressure on the won.''

The won dropped 1.9 percent to 1,210.85 against the dollar as of 12:03 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It reached 1,235 per dollar on Sept. 30, the weakest level since April 2003. The Singapore dollar dropped 0.5 percent to S$1.4395, according to data compiled by Bloomberg. The baht fell as much as 0.3 percent to 34.07 against the dollar before trading at 34.05 in Bangkok. Taiwan's dollar dropped 0.3 percent to NT$32.125.

The MSCI Asia Pacific Index dropped 1.4 percent, even after the U.S. Senate voted 74-25 in favor of a bill that authorizes the government to buy troubled assets from financial institutions reeling from a record number of home foreclosures.

Reserves Decline

South Korea's foreign-exchange reserves fell for a sixth month in September after authorities provided dollars in the swap market to stem the won's drop. Reserves decreased to $239.7 billion from $243.2 billion in August, the Bank of Korea said in a statement released in Seoul today. Central banks intervene in the currency markets by either selling or buying foreign exchange.

South Korea's government is determined to stabilize the currency, said Vice Finance Minister Kim Dong Soo, describing the won's recent decline as excessive.

Thailand's baht fell for a second day. The baht is the third biggest loser this year of the 10 most-active currencies in Asia after the South Korean won and India's rupee.

There are ``uncertainties on whether the package will be passed,'' said Thio Chin Loo, a currency strategist at BNP Paribas SA in Singapore. ``If the dollar remains bid against Asian currencies, the dollar-baht will find its way up.''

Deputy Bank of Thailand Governor Atchana Waiquamdee said Sept. 30 that the risk to economic growth from external factors was ``quite high'' as the nation cannot decouple itself from the world's biggest economy.

Singapore Dollar

The Singapore currency traded near the lowest since January on concern the city-state is heading for a recession as the global financial crisis deepens. The local dollar fell for a second day before the Monetary Authority of Singapore meets this month to decide on the next course of its policy.

``The focus is on the global economy right now and our numbers haven't been inspiring either,'' said Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings, Southeast Asia's largest lender. ``The market is looking at a monetary policy shift.''

The local currency will fall to S$1.47 by the end of this year, Wee Forecast.

Industrial production in the city-state contracted for a second month in August on declining electronics and pharmaceutical output, the Economic Development Board in Singapore said on Sept. 26.

Philippine Peso

The Philippine peso climbed for the first time in five days on speculation the House of Representatives will support the U.S. legislation in a vote tomorrow.

``An approval will restore confidence among investors and will lessen risk aversion,'' said Antonio Espedido, treasurer at China Banking Corp. in Manila. ``The pressure on the peso is also easing as money flows from remittances start to come in.''

The local currency rose 0.3 percent to 46.90 per dollar in Manila, according to Tullett Prebon Plc.

The Philippine central bank meets on Monday to decide on its benchmark interest rate. Policymakers increased borrowing costs in the last three meetings to 6 percent.

Elsewhere, Vietnam's dong was little changed at 16,605. Financial markets were closed in Malaysia, Indonesia, China and India for public holidays.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.