Asian currencies tread water

Asian currencies tread water

SINGAPORE (Reuters): Most Asian currencies remained in well- worn territory yesterday as the stricken Korean won managed to stave off further attacks with the help of its central bank.

Dealers said the Bank of Korea stepped in to rescue the won from the brink of the psychological 1,000-to-the-dollar level in opening trade and later lowered its intervention level.

The won ended at 989.90 to the dollar after the central bank sold dollars aggressively at 999.90 won and then at 989.00 won.

The Bank of Korea backed its action with strong verbal support, discouraging heavy won sales for the time being. A central bank official said the bank would strenuously support the won's "Maginot Line" of 1,000.

"We will absolutely defend the 1,000 won level to the dollar," a central bank official said. "To this end, we will implement stronger measures."

Singapore dealers said the central bank's efforts had caused won non-deliverable forwards to come off their highs as well.

"The reason the forwards are moving to the left is because people are probably saying that the spot Korean won is not going to pass 1,000 anytime soon. They think the central bank is not going to let it," said one dealer.

But not everyone was convinced.

"Any strengthening in the won would be a correction. I don't foresee any help for the won in the short term," a senior regional currencies dealer in Singapore said.

Korea's overnight call loan rate shot to a yearly high of 14.50 percent as merchant banks, saddled with bad debts following major bankruptcies, sought hard cash to buy dollars.

The government said it would soon announce a financial stabilization package, including relief for the troubled banks.

Elsewhere in North Asia, the Taiwan dollar ended weak but off its lows on the won's recovery and speculation the central bank had intervened to defend the Taiwan dollar at the T$31 level to the U.S. dollar.

It ended at T$30.992 against Monday's T$30.985.

Dealers said the Taiwan dollar's direction would continue to be driven by the won's moves due to intense competition between the two territories in key export markets.

"The only reason for the Taiwan dollar to cross 31.00 is if the won goes past 1,000," a Singapore dealer said.

The Hong Kong dollar eased to 7.7315/45 to the U.S. dollar from 7.7295/10 at Monday's close, but dealers said there was little impact on the interbank market from Monday's run on International Bank of Asia.

However, some dealers said they expected borrowing costs of smaller banks to rise after the incident. Financial Secretary Donald Tsang said Hong Kong authorities would help International Bank of Asia meet its obligations.

In Southeast Asia, the Thai baht slid to 37.90/38.10 to the dollar onshore from 37.10/37.30 late on Monday as initial euphoria over the appointment of new Prime Minister Chuan Leekpai faded.

Dealers said the market was awaiting details of Chuan's new cabinet and concrete steps to rehabilitate the financial sector.

Chuan was quoted in an interview with a Thai newspaper as saying he expected to be able to revitalize confidence in the immediate term to halt capital flight from Thailand and solve liquidity problems.

The Philippine peso rose to close at 33.82 to the dollar from a previous 34.27, after breaching its first volatility band at 34.74 and hitting a high of 34.48.

Manila traders said the peso was boosted by large inflows from overseas contract workers repatriating their wages and talk a Hong Kong firm might have moved some funds to Philippine-based banks to buy shares in a local beer and food conglomerate.

After the market close, central bank governor Gabriel Singson said the peso's depreciation had been "over-exaggerated" and it was likely to correct in line with economic fundamentals.

The Indonesian rupiah hovered between 3,310 and 3,330 to the dollar, trapped between corporate dollar demand and fears of concerted central bank intervention.

Dealers said the government's pledge on Monday to close 16 unhealthy banks despite potential political fallout had boosted support for the rupiah.

Joint interventions by the central banks of Japan, Singapore and Indonesia to buy the rupiah last week had also helped stabilize the currency for the time being.

The Malaysian ringgit edged up to 3.2960/60 to the dollar from Monday's 3.3150/250, but activity was confined to a very narrow range, dealers said.

A Standard & Poor's report saying it did not see Malaysia facing the same problems as Indonesia and Thailand helped prop up the ringgit, dealers said.