Won falls on concern BOK will sell, Taiwan dollar rises

Won falls on concern BOK will sell, Taiwan dollar rises

Yumi Kuramitsu, Bloomberg/Singapore

South Korea's won fell from a seven- year high after a report
said the government will sell a record amount of bonds this month
to help curb the currency's gains.

The government will sell 5 trillion won (US$4.8 billion) of
foreign-exchange stabilization bonds as part of 8.27 trillion won
of sales this month, Internet news provider MoneyToday said
yesterday. The won strengthened 15 percent last year against the
dollar, the best performer among the 15 most actively traded
currencies of Asia-Pacific region tracked by Bloomberg.

"They are issuing quite a huge amount and they are probably
preparing for intervention," said Irene Cheung, Singapore-based
head of Asia sovereign and currency strategy at ABN Amro Bank NV.
"It shows that they are quite committed to foreign-exchange
operations" to stem gains in the won.

The won fell 0.3 percent to close at 1,038.10 against the
dollar at 4 p.m. local time, according to Seoul Money Brokerage
Services Ltd. It closed at 1,035.1 on Dec. 31, the highest since
Nov. 18, 1997. ABN expects the won to advance to 1,015 against
the dollar in the first quarter, according to Cheung.

South Korean export growth slowed in December and companies
and analysts predict the stronger won will damp the pace of
shipments this year. Export expansion slowed to 20 percent from a
revised 27 percent in November, the government said on Jan. 1.

The country relies on overseas sales, which account for about
40 percent of the economy, to drive growth as credit-card debt
has forced local consumers to cut spending. A stronger won means
it costs more for purchasers abroad to buy Korean goods.

The Taiwan dollar gained after the island's Taiex index rose
for a fifth session, increasing the appeal of local assets.

Overseas fund managers were net buyers of Taiwan's equities
for at least a fifth year in 2004, acquiring a net $9.2 billion
of stocks. They bought a net $113 million today, according to the
stock exchange data. Taiwan's central bank raised its benchmark
interest rate on Dec. 30 and said more increases are likely, also
making the island's currency more attractive.

"With interest-rate increases and a gain in stocks, the
environment is for the Taiwan dollar to be under pressure to
appreciate," said Noriyoshi Tsunoda, assistant general manager of
the treasury department in Taipei at Mizuho Corporate Bank Ltd.,
a unit of Japan's biggest lender. The Taiwan dollar may
strengthen to around NT$30 against the dollar by the end of June,
he said.

Taiwan's dollar rose 0.2 percent to NT$31.845 against its U.S.
counterpart, according to Taipei Forex Inc. The local dollar on
Dec. 31 had its highest close since Oct. 12, 2000, and
strengthened to NT$31.5 on an intraday basis, the highest since
Oct. 26, 2000. The Taiex rose 2.6 percent over the past five
sessions.

South Korea's Business confidence dropped to a three-year low
in December as consumer spending slumped and a stronger won
cooled exports, according to the Federation of Korean Industries,
which represents the nation's biggest industrial groups.

Hyundai Motor Co., South Korea's largest automaker, said Dec.
1 domestic vehicle sales fell 1.1 percent from a year earlier in
November while exports rose 27.5 percent.

The government last year spent 18.8 trillion won, helping
limit gains in the currency, it said on Dec. 27.

"The MOF may want to have a big intervention this month," said
Sam Hong, a currency derivatives department manager at Shinhan
Bank in Seoul. The won may weaken to 1,043 against the dollar
this week, he said.

Elsewhere in Asia, the Singapore dollar dropped 0.3 percent
against its U.S. counterpart to S$1.6372 and the Thai baht
weakened 0.2 percent to 39.00.