Thursday, October 30, 2008

Won soars 16.5 pct on currency swap deal

Won soars 16.5 pct on currency swap deal

SEOUL, Oct. 30 (Yonhap) -- The South Korean won spiked 16.5 percent against the dollar Thursday on a currency swap deal with the U.S., a bullish stock market and Seoul's decreased current account deficit, dealers said.

The local currency closed at 1,250 against the greenback, up 177 won from the previous session's close and the biggest daily gain since Dec. 26, 1997.

The currency, which plummeted to a more than ten year low of 1,495 won to the greenback, rallied as foreign exchange authorities accelerated moves to restore confidence in financial markets.

The Bank of Korea (BOK) said earlier in the day it has concluded a currency swap agreement of up to US$30 billion with the U.S. Fed, which will help stem the won's sharp decline against the dollar.

BOK Gov. Lee Seong-tae said the swap deal will help the local financial market and ease concerns about local banks' dollar shortage.

Finance Minister Kang Man-soo also said that the country is seeking to forge similar deals with Japan and China.

"The news will help market sentiment improve, and help ease concerns over a shortage of dollars at banks and local companies," said Kwon Woo-hyun, a currency dealer at Woori Bank. "But it will take time for the currency rate to stabilize due to continued foreign sell-offs of local stocks."

The local currency has lost more than 30 percent against the greenback so far this year, in large part due to the continued sell-offs of local stocks by foreign investors and concerns that local lenders are facing difficulties repaying short-term foreign debts.

A bullish run on the local stock market also helped the local currency gain against the greenback while a narrowed current account deficit reduced dollar demand, they said.

The won's sharp rise was also helped by a central bank report that the country's current account shortfall narrowed sharply to $1.22 billion in September, compared with a deficit of $4.7 billion the previous month.

South Korea has posted current account shortfalls for every month this year except May as oil prices and the won's tumble drove up the cost of imported goods.

A continued deficit raised concerns that declining dollar supplies will further put downward pressure on the local currency.

The bank forecast that the economy is likely to post a current account surplus of more than $1 billion in October as the trade balance swings to the black.

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