Korean Won Gains Most in Week on Government Bank Debt Guarantee

By Kim Kyoungwha

Oct. 20 (Bloomberg) -- South Korea's won rose the most in a week after the government sought to rescue its financial system by guaranteeing $100 billion of banks' foreign-currency debt.

The currency gained for a second day, paring this year's loss to 27 percent, after the Bank of Korea said it will provide $30 billion in U.S. dollars to lenders. The measures followed an Oct. 15 report by Standard & Poor's there's a more than 50 percent chance Korean banks won't be able to find foreign funding, threatening their ability to repay short-term debt.

``This is a very substantial package and addresses many of the key concerns regarding bank debt and dollar liquidity,'' said Dwyfor Evans, a currency strategist with State Street Global Markets in Hong Kong. ``We are not so convinced that this has long-term relevance, after all, bailout packages elsewhere have not led to sustained recovery in currencies.''

The won rose 2.9 percent to 1,296.5 per dollar at 9:15 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The currency lost 9.5 percent this month. South Korean foreign- currency debt due in a year almost tripled to $176 billion between June and the end of 2005, helping make the currency Asia's worst performer.

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