S Korea scrambles to defend sliding markets
Saturday, 11 October 2008

REUTERS, SEOUL- South Korea scrambled on Friday to prop up its tumbling markets with the finance minister set to plead with US bankers to keep credit lines open for local banks under threat from the global financial crisis.

It also called on East Asian countries to expand a proposed $80 billion currency swap deal to shelter their economies from the financial storm that investors fear is pushing the global economy into recession.
The won slumped as much as 5 percent in early trading and the main stock market index dropped 9 percent, prompting official and private-sector efforts to prop them up and restore confidence in the country's shaken markets.
"I have never seen anything like this in my 20-year financial career. This is probably the worst since the Great Depression. It is impossible to predict the bottom, and technical analysis is meaningless as panic and fears overwhelm the markets," said Jang Huh, managing director at Prudential Asset Management.
The won crashed this week 18 percent to its intraday low on Thursday -- also its weakest level in a decade -- even as officials tried to reassure investors the economy could weather the financial storm.
When it dropped sharply again on Friday, dealers said authorities stepped in to repeatedly sell dollars, sparking the currency's biggest daily swing since the height of the Asian financial crisis.
By the end of local trading, the won was up 5.6 percent on the day at 1,306.9 per dollar, and up almost 19 percent from the day's low.
Regulators told banks to submit records of foreign exchange trades so they could track down any speculators in the won, which has fallen 28 percent this year - by the far Asia's worst-performing currency monitored by Reuters News.
And indicating that major companies are being pushed to do their bit to help relieve strain on the currency, steel giant POSCO announced it was selling $100 million for won on the local market and would issue a $1 billion global bond.
"It's strange that all the big guys sold their share of U.S. dollars today. Maybe the government also wanted corporate efforts in stabilizing the forex markets," said Lee Won-jae, an analyst at SK Securities.
Heads of local brokerages pledged to form a joint fund to shore up the stock market and said they would refrain from selling foreign financial products to relieve won pressure.
For the government's part, analysts said it was betting that this weekend's international finance meetings in Washington will do enough to calm world markets, whose turmoil has put South Korea's economy, and especially its banks, at risk.
The Bank of Korea joined other central banks this week in cutting interest rates in a concerted effort to boost market sentiment.
"It seems the government is expecting something big to happen from the series of important meetings over the weekend, such as G7," said Yi Hyo-keun, economist at Daewoo Securities
"Together with intervention, I think the authorities' measures such as their investigation of banks, had a big impact, because all these came amid growing perception the won was falling too much and too quickly by any measure."
Finance Minister Kang Man-soo is flying to the United States where, on the sidelines of annual IMF/World Bank meetings this weekend, he will ask leading U.S. bank executives for expanded credit lines for local banks struggling to secure dollar funds.
"(He plans to) request their support in domestic banks' efforts to secure more foreign-currency liquidity, such as expanding their credit lines to domestic banks, as well as discuss recent circumstances," the ministry said.
Kang, under growing criticism at home for his handling of the financial turmoil, will meet Citigroup, Morgan Stanley and Goldman Sachs.
He said he was confident that the country's foreign exchange reserves, the world's sixth-largest at almost $240 billion, and the country's foreign debt were manageable although he expected an "extended battle" against the financial turmoil.
He also said he wanted to increase the size of a proposed pool of $80 billion in currency swaps among East Asian countries and to implement the scheme quickly.
President Lee Myung-bak, criticized in opinion polls along with his government for handling the crisis poorly, has called for a summit later this month with neighboring economic giants Japan and China on ways to grapple with a world crisis that has toppled banks from the United States to Iceland.
Bank shares led the decline on the Seoul stock market, which fell as much as 9 percent to its lowest since November 2005 amid a broader global markets sell off. By the close it had halved those losses.
The banks are seen as vulnerable because they are more reliant than many regional banks on short-term credit markets at the heart of the global credit crisis, and so more vulnerable to the liquidity squeeze

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