Korean Won Falls on Foreigner Share Sales, Growth Concerns

By Kim Kyoungwha

Oct. 22 (Bloomberg) -- South Korea's won fell for a second day against the dollar as overseas investors cut their holdings of the nation's stocks on concern a global slump will hurt exports and the economy.

The currency lost 32 percent this year, Asia's worst performer, as prospects of a global recession prompted funds to withdraw from emerging-market assets such as in Korea, increasing purchases of dollars. The Maeil Business Newspaper reported today that the country's trade account is likely to be in deficit this month as overseas sales cool.

``Demand for dollars outweighs supplies as foreign investors keep selling stocks and importers accelerate their purchases,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``There's some caution that the central bank may intervene to block the dollar from rising above 1,400.''

The won declined 3.2 percent to 1,363.50 as of 11:25 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. Global funds sold more Korean shares than they bought for a sixth day, according to Korea Exchange.

The government's forecast for a trade surplus this month may prove wrong because export growth is slowing, the Maeil Business Newspaper reported. Imports exceeded overseas sales by $2.7 billion in the first 20 days of this month, it said, citing unidentified officials at the Ministry of Knowledge Economy and the customs office.

Bonds Gain

Local government bonds rose on speculation the central bank will cut interest rates to spur spending and investment in Asia's fourth-largest economy.

Economic growth is likely to fall short of 4 percent in the second half of this year and the first half of 2009, central bank Governor Lee Seong Tae said yesterday. The Bank of Korea reduced borrowing costs for the first time in four years on Oct. 9, taking the benchmark interest rate to 5 percent.

``The atmosphere is very favorable for the bond market,'' said Nam Goong Won, a fund manager with Korea Exchange Bank in Seoul. ``The next source of concern, the economic slowdown, is fueling expectations that interest rates will be cut further.''

The yield on the 5.5 percent note due June 2011 fell 4 basis points, or 0.04 percentage point, to 4.96 percent, according to Korea Exchange. The price of the security rose 0.11, or 11 won per 10,000 face amount to 103.33.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.