South Korean Won Drops by Most in Two Weeks on Credit Loss Woes

By Kim Kyoungwha

April 21 (Bloomberg) -- South Korea’s won dropped the most in almost two weeks as widening credit losses in the U.S. damped risk appetite, curbing demand for emerging-market assets.

The currency weakened for a second day, following a run of six straight weekly gains, after Bank of America Corp. set aside more money for bad loans and Goldman Sachs Group Inc. said Citigroup Inc.’s credit losses are growing at a “rapid rate.” Korean shares retreated after a 4.3 percent plunge in the Standard & Poor’s 500 Index, the steepest slide in seven weeks.

“A drop in U.S. stocks is buoying the flight-to-quality sentiment again,” said James Lee, an economist with JPMorgan Chase & Co. in Seoul. “And a consolidation in the won after a recent rally was overdue as people turned a bit cautious about chasing the currency further.”

The won fell 1.3 percent to 1,352.13 per dollar as of 9:52 a.m. in Seoul, according to data compiled by Bloomberg. The currency has lost 6.9 percent this year, the biggest drop among Asia’s 10 most-traded currencies outside of Japan. The Kospi index of local equities slid 1.5 percent today.

Emerging-market governments’ credit quality “markedly” deteriorated in the past six months and policy responses will be key to avoid ratings downgrades, Standard & Poor’s Ratings Services said yesterday in New York.

The International Monetary Fund will cut its forecast for Korea’s economic growth next year to about 1.5 percent, the Chosun Ilbo newspaper reported. The estimate, which will be announced in the IMF’s World Economic Outlook report tomorrow, is lower than the fund’s previous projection of 4.2 percent growth, the newspaper reported, without saying where it obtained the information.

The Bank of Korea this month forecast the economy will expand 3.5 percent in 2010, after shrinking 2.4 percent in 2009.

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