Asian Currencies: Won Rebounds After Biggest Drop in a Decade

By Lilian Karunungan

Oct. 18 (Bloomberg) -- South Korea's won rebounded yesterday, following the biggest drop in a decade on Oct. 16, on speculation the government will prop up confidence in financial markets. Indonesia's rupiah and Thailand's baht gained.

The won snapped a two-day slide, paring this year's loss to 29 percent after the Bank of Korea said it will trade directly with banks in the swap market to help boost foreign currency liquidity. The government needs to raise spending and cut taxes to shelter the economy from the global turmoil, Finance Minister Kang Man Soo said yesterday.

``The move by the central bank 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 2.9 percent to 1,334 per dollar in Seoul yesterday, according to Seoul Money Brokerage Services Ltd. The rupiah advanced 0.7 percent to 9,810 in Jakarta, from 9,875 Oct. 16, according to data compiled by Bloomberg.

The won has lost 8.3 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 yesterday. Currently, the central bank trades first with intermediary banks, which then trade with local banks.

Kang and other policy makers held an emergency summit yesterday, seeking steps to restore confidence in the economy after stocks plunged to a three-year low. The Kospi share index tumbled 2.7 percent yesterday, extending this year's loss to 38 percent.

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 posted its first weekly gain in a month as the central bank sold dollars to limit losses stemming from a slump in the stock market.

Indonesia approved on Oct. 16 a plan giving authorities power to rescue troubled banks and insurance companies. The nation's benchmark share index fell 4.7 percent yesterday for a fourth weekly drop.

Intervention Caution

``Market players are cautious about central bank intervention,'' said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore.

The currency, which declined past 10,000 last week for the first time in three years, advanced 1.4 percent this week. Central banks arrange sales or purchases of currencies to influence exchange rates.

Thailand's baht ended a two-week drop on speculation cooperation among Asian governments will boost confidence among investors. Indonesia's President Susilo Bambang Yudhoyono wrote to counterparts in the region, proposing a meeting with Japan, China and South Korea to find ways to weather the credit crisis.

``We are seeing some resilience in the baht,'' said Carl Rajoo, a regional economist at Forecast Singapore Pte Ltd. ``Fundamentally, Thailand is still quite robust although politics will continue to weigh on the currency.''

The baht rose to 34.26 a dollar from 34.27 on Oct. 16, according to data compiled by Bloomberg.

Elsewhere, the Philippine peso was little changed at 48.085 a dollar, according to Tullett Prebon Plc. The Malaysian ringgit was at 3.5261 versus 3.5265 on Oct. 16. Taiwan's dollar was little changed at NT$32.550 and Vietnam's dong fell 0.1 percent to 16,605.

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