South Korean Stocks Tumble to a Two-week Low as Woori Slumps

By Saeromi Shin

Nov. 13 (Bloomberg) -- South Korea's Kospi index fell to a two-week low, led by financial and technology stocks, after the government rejected speculation it plans a fund to help lenders raise capital.

Woori Finance Holdings Co. and Hana Financial Group Inc. tumbled more than 14 percent. LG Display Co., the world's second-biggest maker of liquid crystal display panels, plunged 13 percent after agreeing to pay $400 million in fines for fixing prices in the U.S. Posco, Asia's third-biggest steelmaker, slid 8.3 percent on concern prices of the metal will decline as the global economic slump worsens.

The Kospi index tumbled 49.11, or 4.3 percent, to 1,074.75 as of 3:35 p.m. in Seoul, on course for its lowest close since Oct. 29. Financial stocks accounted for almost a quarter of the drop today. Stock markets opened and will close an hour later than usual today due to college entrance examinations.

``Investors seem to think that Korean banks would ultimately need some kind of capital injection,'' said Mo Jae Sung, a fund manager who helps oversee the equivalent of $995 million at Hanwha Investment Trust Management Co. in Seoul. ``With bad loans rising and banks coming under government pressure to extend more loans, banks will need recapitalization.''

South Korea, which already holds stakes in banks including Woori, last month pledged to guarantee $100 billion in bank debts and supply lenders with $30 billion in dollars to stabilize its financial markets. The Bank of Korea, the central bank, has undertaken the most aggressive round of cuts since the bank began setting a policy rate a decade ago.

No Plans for Fund

The Maeil Business Newspaper reported today that the government planned a fund of at least 10 trillion won ($7.2 billion) to buy subordinated bonds and redeemable preferred shares from banks. Rhee Chang Yong, vice chairman of the Financial Services Commission, said in a telephone interview that while setting up a fund may be ``theoretically possible,'' it isn't on the agenda.

Woori Finance fell 14 percent to 5,330 won, set for the lowest close since May 2003. Prudential Investment & Securities Co. cut its share-price estimate on Woori by 40 percent to 7,500 won, citing its relatively high portion of loans to the construction industry. Shinsung Engineering & Construction Co., to which Woori Bank lent 109.5 billion won, asked a Seoul court to help reschedule its debts with creditors. Hana declined 15 percent to 16,850 won, a record low.

Samsung, Posco

LG Display fell 13 percent to 19,700 won after agreeing to pay the second-highest criminal fine the U.S. Department of Justice's antitrust division has imposed. Samsung Electronics Co., Asia's biggest maker of chips and flat screens, lost 3.8 percent to 462,500 won after Intel Corp., the largest computer- chip maker, lowered its fourth-quarter sales forecast by about $1 billion.

Posco fell 8.3 percent to 317,000 won. JPMorgan Chase & Co. said China's decision to scrap some steel export tariffs may boost overseas shipments in the next few months, a move that might put ``more pressure'' on regional and international steel prices in the next two to three months.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net.