By Na Jeong-ju
Staff Reporter
The Korean won tumbled below 1,000 won against one U.S. dollar for the first time in two years and three months, Monday, as the turmoil on Wall Street took a heavy toll on investor sentiment here, prompting another massive stock sell off by foreign investors.
The won shed 31.9 won to close at 1,029.2 won per greenback on the Seoul currency market, its weakest level since Dec. 12, 2005, when it traded at 1,033.7 won. The currency also fell to its weakest point in three years and five months against the Japanese yen, closing at 1,061.58 won per 100 yen.
Stock and bond markets were also shaken.
``The local securities market is now a cash machine for foreign investors,'' said Chung Eui-seok, an analyst at Goodmorning Shinhan Securities. ``They are selling their assets here to secure more cash amid deepening concerns about a credit squeeze in the United States.''
Analysts said financial markets were derailed as investors reacted nervously to the news across the Pacific. JP Morgan Chase said it would buy troubled Bear Stearns, the fifth largest investment bank of the United States, at a deep discount of $2 per share. The U.S. Federal Reserve's move to cut the rate on direct loans to commercial lenders before Asian markets opened also failed to calm panicky investors, they said.
Currency dealers delayed selling dollar holdings on speculation that the won's losing streak would continue. The won has fallen for the 12th consecutive session, losing 92.7 won against the greenback.
Dealers said the won is expected to be under pressure down the road, reflecting a falling trade surplus and concerns about an economic slowdown. Korean firms are also scheduled to make dividend payments to foreign investors in March and April, which will supply more won to the market.
The Bank of Korea raised concerns about the won's steep fall, Monday, saying it is ``closely watching the market.'' The comments raised speculation that the central bank has begun to intervene in the market to prevent further falls of the local currency. But the Ministry of Strategy and Finance has not issued any statements. Strategy and Finance Minister Kang Man-soo has hinted the government is ready to tolerate inflation and a trade deficit to realize 6 percent growth this year.
The won's fall will put upward pressure on consumer prices.
``A weaker won can provide a setback to the economy amid rising international prices of raw materials and growing inflation here,'' said Kwon Soon-woo, an economist at Samsung Economic Research Institute. ``External risks may pull growth rates down and increase volatility on the financial market.''