Won defies govt steps and hits new high

Won defies govt steps and hits new high

HONG KONG (Dow Jones): The South Korean won extended its winning run Wednesday, powering to a fresh two-year high despite continued government action to hold it back.

The New Taiwan dollar also climbed to a new two-year high at the start of the day's trading, but surrendered its gains to end the session a touch lower on heavy central bank intervention.

In Southeast Asia the Thai baht gained ground, rising against the U.S. dollar, but the region's other currencies remained firmly range-bound.

The won's continued advance prompted the authorities in Seoul to promise further measures to stem the local currency's appreciation and preserve the international competitiveness of South Korean exports.

The Ministry of Finance and Economy said it will issue over 1 trillion won in won-stabilization bonds next week in order to fund dollar-supportive intervention in the foreign exchange market.

The government is also directing local financial institutions to buy up to $5 billion in the market.

In the long run, however, foreign observers doubt the South Korean government's measures will do more than slow the pace of the won's appreciation.

Faced with a current account surplus expected to top $20 billion this year, and direct and portfolio investment inflows also in excess of $20 billion as foreigners buy into what they believe is a severely undervalued currency, the South Korean government has little choice but to accept a stronger won, analysts say.

By Wednesday's close dollar sales had forced the U.S. currency as low as 1.126 won, down steeply from 1,139.50 won the day before.

The New Taiwan dollar also touched a fresh two-year high Wednesday, with the U.S. dollar falling to NT$31.550 at the start of trading in Taipei.

By the close, the U.S. currency had been bumped back up to NT$31.605, leading some market watchers to believe the authorities have drawn a line in the sand at NT$31.550, at least for the time being. At Tuesday's close the U.S. dollar had been at NT$31.600.

In Southeast Asia the baht strengthened in response to purchases from Thai corporations and offshore market players.

Toward the end of Asian trading the U.S. dollar was quoted at 38.5600 baht, down from 38.7600 baht the previous day.

The upward surge of the Singapore stock market failed to push the Singapore dollar significantly higher, as market players hesitated to sell down U.S. dollars, afraid the government would step in to buy the U.S. currency at S$1.6750.

Late in Asia the U.S. dollar was quoted at S$1.6782, compared with S$1.6791 the previous day. Most dealers see the U.S. currency continuing to trade sideways over the coming days, ranging between S$1.6750 and S$1.6800.

The Indonesian rupiah was also flat, despite fresh revelations of banking scandal in Jakarta. Late Wednesday the dollar was at Rp 7,220, little changed from Rp 7,215 Tuesday. Traders see the current Rp 7,150-Rp 7,300 range holding over the near term.

The Philippine peso was also static, despite growing concerns over the size of the government's budget deficit. The U.S. dollar closed at 40.740 pesos compared with 40.730 pesos the day before.