Asia currencies' gloom thick ahead of IMF deal

Asia currencies' gloom thick ahead of IMF deal

SINGAPORE (Reuters): Asia's wounded currencies were shoved into unchartered territory yesterday as a much-awaited rescue plan between Seoul and the International Monetary Fund (IMF) appeared elusive until the end of the day.

A flood of dollar purchases fueled by fear of an impasse to the billion dollar bail-out agreement sent some Southeast Asian currencies to historic lows.

But an 11th hour announcement eleventh hour by South Korea's Finance Ministry that a deal with the IMF was imminent -- a letter of intent was signed shortly afterwards -- helped stall the erosion of the Thai baht and Indonesian rupiah.

The South Korean ministry said a news conference at 1130 GMT would detail the terms and conditions of the loan. The IMF said it was recommending a $21 billion standby credit for Seoul over three years.

Currency experts said financial instability in South Korea, and repeated delays in agreement with the IMF, were among many factors triggering dollar accumulation.

"The market is a little long on U.S. dollars because people have been buying the whole day. It's a function of the delay and everything else in the region," said a dealer with a Japanese brokerage, noting a general fear of corporate failures.

But the dealer said he expected dollar demand to ease.

"An agreement, any bit of good news, should see it come back off," he said.

Currency traders and economists said that until a deal was signed, the market had little choice but to sell the won and other regionals currencies.

"There will be relief if they can reach agreement," said Andrew Fung, regional treasury economist with Standard Chartered Bank who thought the sticking point in the talks had probably been the closure of banks or stricter compliance issues.

"There was talk of requiring commercial banks to adhere to much higher adequacy ratios," he said.

South Korea's financial crisis knocked the won to a 1,290 low against the dollar before it regained some ground to 1,195/1,199 against Tuesday's close of 1,235.

News of financial difficulty at South Korea's Halla Group also led to won sales on fears of mass bankruptcies from the expected tough IMF rescue conditions, dealers said.

The Thai baht fell sharply, prompting government appeals for investors to stay calm and central bank intervention.

The intervention helped the baht onshore to recover and be quoted at 42.58/42.68 per dollar versus 42.90/43.10 earlier. Indonesia's rupiah slipped to a new low of 3,940 against the dollar against late Tuesday's 3,800 level.

Dealers said they expected the currency to test the 4,000 per dollar barrier if 3,950 was broken, but anticipated central bank action to halt the erosion.

In Malaysia, the ringgit suffered as corporate demand for dollars dragged it to 3.6750 before recovering to 3.6500 at 0930 GMT. It stood around 3.5950/6050 late on Tuesday.

A dealer in Singapore said there rumors that Bank Negara would step in to buy ringgit at 3.6800.

The Singapore dollar sank early to a 52-month low against U.S. dollar at 1.6170, down in line with regional falls.

"The Sing is basically following the pack down. Investors are trying to get out of Asia because of no confidence," a dealer with a U.S. brokerage said.

It recovered to 1.6120 but stayed vulnerable to falls.

The Philippine peso hovered around previous levels at 35.00, up from Tuesday's low of 35.26. Dealers said thin liquidity in the market for dollars slowed the peso's decline.

Taiwan's dollar drifted moderately lower to T$32.221/32.230 in late action compared with Tuesday's T$32.200.

In Hong Kong, the dollar dipped through a key support level of HK$7.74 but rebounded to HK$7.7385/95 per dollar, as traders took profit against the greenback.