South Korea Won Leads Gains in Asian Currencies; Rupiah Weakens

By Judy Chen and Kim Kyoungwha

Oct. 29 (Bloomberg) -- South Korea's won led the advance among the Asian currencies that strengthened today on speculation a rally in global stocks boosted investor confidence in emerging- market assets.

The won rose from yesterday's decade-low after Korea Exchange figures showed international investors bought more of the nation's equities than they sold for the first time in 11 days. The MSCI Asia-Pacific Index of regional shares climbed for a second day following a gain of 11 percent in the Standard & Poor's 500. Indonesia's rupiah was the only Asian currency to decline, erasing an earlier advance.

``Rocketing stocks are lending big support to the won,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``Still, it's too early to say markets are normalizing given that sentiment remains frail.''

The won appreciated 3.3 percent to 1,419 per dollar at 1:40 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The Taiwan dollar had the second biggest gain, rising 0.5 percent to NT$33.289, according to Taipei Forex Inc. Singapore's dollar rose 0.4 percent to S$1.5026. The rupiah lost 1.4 percent to 11,050 versus the dollar.

The extra yield investors demand to hold emerging-market sovereign debt narrowed to 7.60 percentage points, according to JPMorgan Chase & Co's EMBI+ Index. The spread reached 8.65 points on Oct. 24, the most since November 2002.

IMF Funding

Investor sentiment improved on optimism countries such as Belarus, Turkey and Pakistan will receive financial support from the Washington-based International Monetary Fund to help stave off defaults. Hungary will get a 12.5 billion euro ($15.7 billion) loan from the IMF.

Korea's President Lee Myung Bak said yesterday the government plans to announce stimulus measures in November to help the economy, which expanded in the third quarter at the slowest pace in four years.

The won has dropped 35 percent this year, Asia's worst performing currency, followed by a 21 percent decline in India's rupee. The Philippine peso is down 16 percent and the Thai baht 15 percent. The MSCI stock index plunged 50 percent so far this year.

The yen rebounded from its biggest one-day decline against the dollar since 1974 on speculation a rate cut from the Bank of Japan won't stem recent gains. Futures show the Federal Reserve is likely to lower borrowing costs today by at least a half percentage point to 1 percent.

Taiwan Guarantee

Taiwan's dollar rose by the most in more than four months after the Financial Supervisory Commission said it will guarantee all bank deposits and interbank lending until the end of 2009.

``U.S. stocks rallied overnight which helped Asian currencies such as the Taiwan dollar,'' said Thomas Harr, a senior foreign-exchange strategist at Standard Chartered Plc in Singapore. ``It had weakened because of slowing growth expectations. We're still bearish on the Taiwan dollar.''

U.S. stock futures were down, signaling markets there may head lower as Asian stocks pared gains.

Taiwan's bank guarantee will be extended to all local- currency and foreign-currency deposits, as well as government deposits, the Commission said. The regulator will also guarantee overnight or short-term lending by banks to each other, the statement said.

Japan's currency rose almost 2 percent to 96.21 per dollar, from 98.03 late yesterday. The yen has jumped 23 percent versus the euro, 38 percent against the Australian dollar and 29 percent versus the New Zealand dollar this month as the global credit crisis and a stock rout erased more than $12 trillion in equity value.

BOJ Rate Cut

The BOJ is ``leaning toward'' reducing its target rate by a quarter-percentage point to 0.25 percent when it announces a policy decision on Oct. 31, the Nikkei newspaper reported without citing anyone.

``Twenty-five basis points isn't really going to change the bigger scheme of things that much,'' said Ashley Davies, a currency strategist in Singapore at UBS AG, the world's second- largest foreign-exchange trader. ``The European Central Bank and the Bank of England are sequentially cutting rates whereas these are more of one-off adjustments for the Fed and the BOJ.''

He said the yen will gain to 90 per dollar in one month because global fund managers still need to ``de-leverage.'' The yen is a popular currency in carry trades, in which purchases of higher-yielding assets are funded in countries with lower rates.

Elsewhere, the Malaysia ringgit climbed 0.2 percent to 3.5743. The Philippine peso strengthened 0.1 percent to 49.06 and the Indian rupee gained 0.1 percent to 49.8650. Vietnam's dong was little changed at 16,842.

To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Kim Kyoungwha in Beijing at 2309 or kkim19@bloomberg.net.