Won rise continues despite govt threat, rupiah slips

Won rise continues despite govt threat, rupiah slips

HONG KONG (Dow Jones): The Korean won rose Monday to its
highest level since late November 1997 despite verbal
intervention from the finance ministry, dollar purchases executed
by state-run Korea Development Bank and reported direct
intervention from the central bank.

Most other Asian currencies also gained, but the Indonesian
rupiah slipped back as political tensions in Jakarta and unrest
in the provinces continued to unnerve market participants.

The rupiah weakened as players shunned the market, deterred by
weekend talk of a possible military coup, firmly dismissed by
Indonesian President Abdurrahman Wahid, and news of fresh
religious violence in the country's provinces.

Towards the end of Asian dealing Monday, the dollar was quoted
Rp 7,278, up from Rp 7,210 Friday.

The won's rise followed its rapid appreciation Friday after
newly-appointed Finance and Economy Minister Lee Hun-jai
indicated that in future the government would be less inclined to
intervene in the market to slow the currency's rise.

Heavy won-buying by offshore financial institutions was
credited as the main force driving the won sharply higher Monday.

Early trading saw the dollar pushed down steeply to an
intraday low of 1,116.00 won, its lowest against the Korean
currency since Nov. 27, 1997.

The speed of the won's run-up prompted the Finance and Economy
Ministry in Seoul to issue a statement declaring the won's rise
wasn't desirable for the country's economic recovery, especially
in the light of the yen's recent fall against the dollar.

The ministry's implied threat, backed by dollar purchases from
Korea Development Bank and reports that Bank of Korea itself had
been in the market, triggered a flurry of short-covering which
propelled the dollar back above its opening level.

But by the close of the local market, the won's natural
buoyancy had reasserted itself and the dollar had sunk to
1,121.00 won, down from 1,124.80 won at the end of Friday's
session.

Despite Monday's official action to take some of the steam out
of the won's rise, most market participants remain strongly
bullish on the currency's prospects.

With a current account surplus projected at $12 billion for
2000, strong inward portfolio and direct investment flows, and a
relatively tight monetary policy stance aimed at curbing domestic
inflation, most South Korea watchers see the won strengthening by
10 percent or more over the year.

Barclays Capital, for example, is recommending short positions
in the dollar against the won targeting an exchange rate of 1,050
won over a three month time horizon. Barclays also believes the
won will appreciate against the yen, with the Japanese currency
sliding to 10.00 won from around 10.70 won currently.

Most other regional currencies also strengthened Monday.

The New Taiwan dollar edged higher on continued healthy
inflows of portfolio investment capital despite central bank
purchases of U.S. dollars. At the close the U.S. dollar was
quoted at NT$30.835, down from NT$30.845 Saturday.

In Southeast Asia the Thai baht inched upwards on generally
positive market sentiment, which also helped lift the Philippine
peso.

Towards the end of Asian trading the dollar was quoted against
the baht at 37.435 baht, down from 37.495 baht Friday.

In Manila the dollar slipped to close at 40.564 pesos, down
from 40.585 pesos Friday.

The Singapore dollar slipped back, shadowing the fall of the
local stock market, prompting talk that international investment
funds were allocating assets away from the safe haven of
Singapore to other regional markets following the new year.

Late in Asia, the U.S. dollar was quoted against the Singapore
currency at S$1.6741, up marginally from S$1.6730 late Friday.