Asian Currencies: Won Rebounds After Biggest Drop in a Decade

By Lilian Karunungan

Oct. 17 (Bloomberg) -- South Korea's won rebounded, following yesterday's biggest drop in a decade, on speculation the government will prop up confidence in financial markets. The Indonesian rupiah and the Philippine peso gained.

The won snapped a two-day slide, paring this year's loss to 30 percent after the Bank of Korea said it will trade directly with banks in the swap market to help boost foreign currency liquidity. South Korean policy makers are meeting today to compile measures to restore confidence in the economy. Standard & Poor's said today the government should consider guaranteeing banks' debts to help them obtain offshore funding.

``The move by the central bank this morning provided a psychological boost to the currency market,'' said Kim Sung Soon, a currency dealer with state-run Industrial Bank of Korea in Seoul. ``The unrest remains though, as we all are not sure of how this global turmoil will pan out in the months ahead.''

The won rose 2 percent to 1,345 per dollar at 1:13 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The rupiah rose 0.8 percent to 9,800 in Jakarta, from 9,875 yesterday, according to data compiled by Bloomberg.

The won has lost 10.4 percent this month as banks and companies scramble for dollars to service debt, while global turmoil in financial markets makes overseas borrowings even more expensive.

Gains Limited

The change in the trading system will ``help ease the recent market jitters in the foreign-currency money market,'' the Seoul-based Bank of Korea said in a statement. Currently, the central bank trades first with intermediary banks, which then trade with local banks.

South Korea's foreign reserves fell for a sixth month in September to $239.7 billion, from $243.2 billion in August, after authorities provided dollars in the swap market to boost liquidity and help stem the won's drop.

``Further gains in the won may be limited as heavy foreign stock sales in the past few days will spur some demand for the dollar,'' said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. Still, ``exporters are willing to sell dollars on dips in the won, which will provide some buffer.''

Indonesia's rupiah was poised for its first weekly gain in a month on speculation the central bank will sell dollars to limit losses.

Indonesia yesterday passed a rule to give the central bank and deposit guarantee agency more powers to decide on bailing out lenders.

Intervention Caution

The rupiah ``will trade around 9,800 today,'' said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore.``Market players are also cautious about central bank's intervention,''

The currency, which declined past 10,000 last week for the first time in three years, advanced 1.5 percent this week. Central banks arrange sales or purchases of currencies to influence exchange rates.

The Philippine peso snapped two days of losses against the U.S. dollar on speculation gains in Asian stocks will lure investors to the nation's assets.

The peso rose from an 18-month low as the MSCI Asia-Pacific Index of shares rose 1.1 percent today, set for a weekly gain of more than 2 percent, on signs governments are succeeding at attempts to unlock credit markets.

``Some funds are taking advantage of some bounces to get in the equities market, which helps support the peso,'' said Jonathan Ravelas, a strategist at Banco de Oro Unibank Inc. in Manila. ``Still, this is a temporary pause and the peso may further weaken.''

More Declines

The local currency gained 0.1 percent to 48.035 in Manila, according to Tullett Prebon Plc. The peso is headed for its biggest annual loss in eight years.

The Philippine peso, which declined 14 percent this year, will drop another 4 percent as financial turmoil saps demand for emerging-market assets, according to Rafael Consing, treasurer at International Container Terminal Services Inc., the nation's largest port operator. He said that was his personal forecast.

Slowing economic growth, consumer spending and capital outflows will send the currency to 50, the weakest since November 2006, Consing said in an interview from Manila ``Our trading partners in the U.S. and Europe are close to a recession. One doesn't really expect strong export numbers to those countries.''

Elsewhere, the Thai baht was little changed at 34.28 and Taiwan's dollar weakened 0.1 percent to NT$32.566. The Malaysian ringgit was at 3.5250 versus 3.5265 yesterday. Vietnam's dong fell 0.1 percent to 16,610.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net;