Won Falls After Biggest Reserves Drop in a Decade; Bonds Slide

By Kim Kyoungwha

Nov. 4 (Bloomberg) -- South Korea's won fell after the nation's foreign-exchange reserves slid by the most since its $57 billion bailout by the International Monetary Fund in 1997. Government bonds declined.

The currency, Asia's worst performer this year, jumped 16 percent in the past week as the Federal Reserve agreed on a $30 billion swap deal to ease a shortage of dollars. Foreign- exchange reserves plunged to $212.3 billion in October from $239.7 billion in September, the Bank of Korea said in Seoul today, as authorities provided dollars to help banks struggling to access overseas funds.

``Traders are probably having a decrease in reserves in mind even as that's already been known for a while,'' said Jay Won, a currency dealer with Korea Exchange Bank in Seoul. ``Nevertheless, the market has found some stability, which will reduce wild swings in movements.''

Korea's currency fell 1.1 percent to 1,275.70 against the dollar as of 9:54 a.m. local time, according to Seoul Money Brokerage Services Ltd. It's declined 27 percent since the start of the year, the worst among the 10 most-traded Asian currencies outside of Japan. Won said the currency is likely to trade between 1,230 and 1,290 this week.

The finance ministry yesterday announced a 14 trillion won ($11 billion) stimulus plan to prevent the economy from sliding into a recession. South Korea is in talks to expand its $4 billion swap deal with China to as much as $30 billion, Yonhap news agency reported today, citing unidentified officials at Korea's finance ministry and the central bank.

Reserves Drop

Policy makers around the world are adding funds to their financial systems to help calm markets roiled by the global credit crisis. South Korea provided almost $20 billion last month and is injecting an additional $30 billion to local lenders in the currency-swap market and via a state bank.

Korea's local-currency bonds fell for a third day on speculation that the government will increase the supply of debt to finance its stimulus package to shore up growth in Asia's fourth-largest economy.

The yield on the 5.5 percent note due June 2011 rose 3 basis points, or 0.03 percentage point, to 4.66 percent, according to the Korea Stock Exchange. The price of the security fell 0.08, or 8 won per 10,000 won face amount, to 104.24.

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