Most Asian monies fall against US dollar

Most Asian monies fall against US dollar

HONG KONG (Dow Jones): The won surged to its highest level in over two months Thursday after the South Korean government announced an extensive package of measures aimed at stabilizing the country's shaky financial markets.

Other Asian currencies fared less well, falling back against the dollar as the U.S. currency bounced higher against the yen in response to a rally in U.S. asset markets.

The Korean government's announcement that it will inject trillions of won into investment trust companies faced with mass redemptions following the financial collapse of the Daewoo Group triggered what observers described as a powerful relief rally in the local currency.

Won-buying by both domestic and international market players forced the U.S. currency down steeply as the Seoul stock market leapt by 2.8 percent.

From 1,193.00 won at the open, the dollar tumbled to an intraday low of 1,184.40 won, its weakest against the won since Sept. 3, before pulling back slightly in late trading to end the session at 1,184.90 won.

At Wednesday's close, the won was quoted at 1,191.90 won.

The won's rally was reinforced by the government's pledge to buy unlimited amounts of bonds from investment trusts on demand and to maintain interest rates at current single-digit levels.

"The important thing here is that the government is trying to stabilize the financial markets" to avert an asset price spiral, said Chris Tinker, head of fixed income research at Credit Lyonnais Asia in Hong Kong.

Other analysts agreed, saying the government's move to absorb much of the risk of Daewoo's bad debt is positive for the South Korean economy and for the won.

"The weakness of Korea's financial market is acting as a bottle neck which is threatening to drain the whole recovery process," said Steven Xu, treasury economist at Standard Chartered Bank in Hong Kong. "The government has no choice, but to nationalize the debt."

Elsewhere Asian regional currencies failed to match the won's advance.

In Taipei the New Taiwan dollar slipped back, ending an extended unbroken bull run.

Traders blamed the local currency's fall on the 1.5 percent decline in the Taipei stock market, coupled with continued U.S. dollar purchases by the central bank.

None doubted, however, that the New Taiwan dollar would resume its upward trend in the near future.

According to Xu at Standard Chartered, the authorities' repeated foreign exchange market interventions to suppress the New Taiwan dollar's appreciation have injected so much liquidity into Taiwanese money markets that the central bank is finding it impossible to absorb the excess through debt issuance.

As a result domestic overnight interest rates have fallen below the central bank's target rate of 4.8 percent.

"The central bank doesn't want interest rates to fall any further, but it can't target both the interest rate and the exchange rate," Xu said. "It will have to allow the currency to appreciate."

Stripped of the central bank's support, the U.S. dollar will fall "rapidly" to NT$31.50 and then to NT$31.00, Xu predicted. At Thursday's close the U.S. currency was at NT$31.732, up from NT31.722 the previous day.

In Southeast Asia, the Indonesian rupiah lost ground despite a sharp rally in local stocks powered by thawing relations between Jakarta and the International Monetary Fund.

Despite market talk of substantial flight capital repatriation, dollar sales were outweighed by demand for the U.S. currency from Indonesian corporations and from market players looking to exit short positions.

Late in Asian trading, the dollar was quoted at Rp 6,800, up from Rp 6,735 the day before.

Southeast Asia's other currencies maintained their recent tight ranges.

Late in the day, the dollar was quoted against the Thai baht at 38.6900 baht, down a fraction from 38.6950 baht the previous day.

Against the Singapore dollar, the U.S. currency was at S$1.6660, down from S$1.6682 the day before.

Against the Philippine peso the dollar closed at 40.095 pesos, down from 40.120 pesos at the end of Wednesday's session.