Asian monies drop; China snubs calls for yuan peg

Asian monies drop; China snubs calls for yuan peg

Christina Soon, Blooomberg, Singapore

The South Korean won fell on concern the central bank will
sell it to support exports as China damped speculation it will
allow its currency to rise. A gain in China's yuan would help
increase demand for other Asian countries' goods.

The won slid for a first day in three, leading currencies in
the region lower, after China's Vice-Premier Huang Ju and deputy
central bank governor Li Ruogu on Jan. 29 said they want a stable
exchange rate. A rising yuan would raise China's purchasing power
in Asia and make the country's exports costlier to buy abroad.

"Market players are very concerned about the central bank's
intervention" to sell won, said June Geun Park, a trader at BNP
Paribas in Seoul. "Some traders are also covering their short
dollar positions" by buying the dollars after China's comments.
Traders take out short positions to bet on a currency's decline.

The won fell 0.2 percent to 1,025.60 against the dollar as of
4 p.m. local time, according to Seoul Money Brokerage Services
Ltd. South Korea's currency on Jan. 28 completed its largest
weekly gain since the five days ended Nov. 26. Each yen today
bought 9.9 won, compared with 10 won a week ago, Bloomberg data
show.

A rising won makes it tougher for exporters to cut prices
overseas and attract buyers. Exports likely rose 14 percent this
month from a year ago, which would be the smallest gain since
August 2003, after climbing 20 percent in December, according to
the median forecast of 10 economists surveyed by Bloomberg News.

The commerce ministry is due to report the figures tomorrow.
Exports make up about 40 percent of South Korea's economy.

The Singapore dollar and Thailand's baht also fell as some
investors bet China will adjust its fixed exchange rate later
than previously expected.

"It isn't suitable to blindly revalue while preparations are
not complete," four economists, from the National Bureau of
Statistics wrote in a signed commentary published by the China
Business Post. The statistics bureau's spokesman Zheng Jingping
was one of the economists.

Asian currencies rose last week as China's Fan Gang, director
of the state-owned National Economic Research Institute in
Beijing, on Jan. 27 said the issue is how to broaden the yuan's
dollar peg to include other counterparts such as the euro and
yen.

China's Huang and Li on Jan. 29 rejected accusations at the
World Economic Forum in Davos, Switzerland, that the peg gives
their country's exports an unfair advantage. They said China
wants a "stable" exchange rate.

The Group of Seven industrialized countries have since
September 2003 called on China to make the peg more flexible. G-7
finance ministers and central bankers meet in London on Feb. 4-5.

Without a yuan appreciation to help raise Chinese demand for
Asian goods, other regional countries may not tolerate gains in
their currencies.

The Chinese remarks "mean we're not going to see anything" on
the yuan peg, "so the dollar will trade at higher levels against
Asian currencies," said Jimmy Koh, treasury research head in
Singapore at UOB Group, an affiliate of United Overseas Bank.
"There'll be some unwinding of long dollar positions."

Some investors such as Steven Chang, vice president of global
markets in Hong Kong at State Street Bank & Trust Co., bet
inflows of funds into Asia will still strengthen regional
currencies.

The Taiwan dollar strengthened 0.1 percent to NT$31.776 after
sliding as much as 0.4 percent, according to Taipei Forex Inc.

Overseas investors today bought a net US$230 million of
Taiwan's shares, the most since Dec. 29, according to stock
exchange figures. Last week, they purchased a net $180 million of
South Korean stocks, and $91 million of Thai equities.

"The market is still focusing on capital flows, and is
favoring Asian currencies," Chang said. "Though China's not going
to move" its peg, "the money is not going to be moving away very
quickly." Chang declined to give currency forecasts.

South Korea's won may gain as far as 1,000 in the next six
months partly because the government is selling fewer bonds, the
proceeds of which it uses to buy dollars to curb the currency's
advance, Irene Cheung, Singapore-based head of Asia sovereign and
foreign-exchange strategy at ABN Amro Bank NV, wrote in a report.

Speculation that the Federal Reserve will increase interest
rates as the U.S. economy grows may deter some investors from
non- dollar assets, UOB's Koh said.

The Fed meets on Feb. 1-2, and will raise its target interest
rate for overnight loans between banks by a quarter percentage
point for the sixth time since June, to 2.5 percent, according to
77 of 80 economists surveyed by Bloomberg.

The Labor Department on Feb. 4 will say the economy created
200,000 jobs, according to the median forecast in a Bloomberg
poll of 58 economists. Job creation averaged 186,000 a month last
year.