Stock market sell-off drags Asian monies down

Stock market sell-off drags Asian monies down

HONG KONG (Dow Jones): The New Year rally in Asian currencies
reversed sharply on Wednesday, as steep falls in regional stock
markets triggered a sell-off in local currencies around Asia.

But although domestic currencies dropped sharply in foreign
exchange markets from Seoul to Jakarta, the extent of their falls
was limited as institutional investors stuck to their bullish
view of the region and stepped in to buy Asian currencies at
their lows.

In Southeast Asia, both the Thai baht and the Singapore dollar
opened down steeply as market players rushed to cover short U.S.
dollar positions established on Tuesday, afraid the overnight
fall in U.S. equities would be mirrored in local stock markets.

Sure enough, the stock markets in each center tumbled by
around 5%, but the foreign exchange markets proved more resilient
as the U.S. dollar soon topped out in response to renewed selling
interest against both the Thai and Singapore currencies.

"The dollar was not even able to hang on to today's highs
against the baht and the Sing (Singapore dollar)," said the head
of trading at one major European bank in Singapore. "That shows
there are genuine dollar inflows into these countries."

Traders attributed the inflows to international portfolio
managers allocating assets to regional markets in the belief that
Wednesday's sell-off would prove no more than a temporary
setback.

"Some equity funds are taking the opportunity to sell dollars
into the rally and buy into the regional currencies. With the
correction, this is not a bad level to get in," explained a
Singapore-based regional currencies trader at one large U.S.
bank.

Against the baht, the dollar initially shot to a high of
37.4900 baht, over 1.5 percent above the five month low of
36.8500 baht seen late Tuesday.

Toward the end of Asian trading, however, interest to sell
dollars had driven the U.S. currency back down to end local hours
at 37.2500 baht.

Trading in the Singapore dollar followed a similar pattern,
with the U.S. currency rising to an early high of S$1.6578,
before easing back to S$1.6565 late in Asian dealings. Late the
day before, the U.S. dollar had been quoted at S$1.6505.

In North Asia, the South Korean won also dropped sharply from
the start of trading in Seoul as traders hastened to cover their
short positions in the U.S. currency.

Dollar purchases executed by state banks added to the momentum
of the U.S. currency's advance, according to local dealers,
propelling the dollar upward to close at an intraday high of
1,135.00 won, up from 1,122.50 won at Tuesday's close.

Even so, won buying interest didn't evaporate completely, with
traders saying foreign portfolio managers remain poised to invest
in South Korea.

"If the stock market stabilizes tomorrow, offshore funds will
start to buy the won again," said a dealer at one U.S. bank in
Seoul.

Among other Asian currencies, the Indonesian rupiah fell
heavily, in line with the regional trend. Despite domestic
political worries, however, interest to buy the local currency
soon emerged, capping the U.S. dollar above Rp 7,200.

Late in Asia, the U.S. dollar was quoted at Rp 7,155, up from
Rp 7,045 Tuesday.

The Philippine peso also fell heavily, with the dollar rising
to close at a high of 40.165 pesos, up from 39.770 pesos the
previous day.

The new Taiwan dollar also closed lower. But with sentiment
toward the Taipei stock market still strong, the fall in the
Taiwanese currency was attributed more to U.S. dollar buying by
the central bank than to the covering of U.S. dollar shorts by
market players.

At the close, the U.S. dollar was quoted at NT$30.800, up from
NT$30.602 at the end of Tuesday's session.