Australian, New Zealand Dollars Gain on South Korea Banking Aid

By Candice Zachariahs

Oct. 20 (Bloomberg) -- The Australian and New Zealand dollars rose after South Korea said it will guarantee bank debts and bail out lenders to stabilize financial markets, prompting investors to buy higher-yielding assets.

South Korea said yesterday it will guarantee $100 billion in bank debts and provide $30 billion to financial institutions after Standard & Poor's said last week it may cut the credit ratings of the nation's largest lenders. The currencies also advanced as European Central Bank President Jean-Claude Trichet said the banking system is ``on the path to normalization.''

``The Koreans coming up with a rescue package of their own is helping to lower risk aversion,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. The Australian and New Zealand dollars will see ``a tentative rise as risk aversion eases.''

The Australian dollar gained 1 percent to 69.57 U.S. cents as of 8:04 p.m. in Sydney, from 68.88 cents late in New York on Oct. 17. New Zealand's dollar rose 0.5 percent to 61.50 cents from 61.21 cents in New York.

Australia's currency advanced 1 percent to 70.71 yen, from 70 yen in late New York trading Oct. 17. New Zealand's dollar traded at 62.17 yen, from 62.24 last week.

Bank Guarantees

New Zealand Finance Minister Michael Cullen said today officials are working on a possible plan to guarantee wholesale deposits at the nation's banks.

The currencies gained after South Korea yesterday joined Hong Kong, Australia and countries in Europe in providing state backing to banks amid a global financial crisis.

Europe's banking system is ``on the path'' to recovery, ECB President Trichet said yesterday on French Radio RTL.

``I expect the banks to normalize their relationships, meaning that they start lending to each other and that they lend to their clients,'' Trichet said.

His comments came after the Netherlands agreed to invest 10 billion euros ($13.4 billion) in ING Groep NV, the biggest Dutch financial services firm. ING shares dropped a record 27 percent on Oct. 17 after the company said it will post a loss of 500 million euros in the third quarter, its first quarterly loss.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net