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Korean won ends up sharply on minister's comments

SEOUL: The South Korean won closed sharply higher against the dollar on Friday after new Finance Minister Lee Hun-jai said intervention would be avoided unless trading was volatile, dealers said.

Lee's comments triggered stop-loss dollar sales by banks and dollar unloading by exporters despite some dollar buying by state-run banks, they said.

The won rose to 1,124.8 per dollar by the close from Thursday's close of 1,135.1.

It opened at 1,135.0 and moved between 1,124.8 and 1,135.0. State-run banks, such as Korea Development Bank, appear to have bought about $100 million worth at around 1,127/28 won during the morning trade, dealers said.

"The state banks' dollar buying was ignored due to minister Lee's comment that the won-dollar rate would be largely determined by the market," a foreign bank dealer said.

Dealers said the market would stabilise between 1,118 and 1,130 next week.

"The won-dollar rate would hover around the 1,125 level for the time being with the government appearing to be comfortable with it," a local bank dealer said.

A Finance Ministry official confirmed that Lee told reporters on Thursday after his appointment the government would not artificially manipulate the won-dollar rate unless the market showed volatility.

Lee, formerly chairman of the Financial Supervisory Commission, was appointed minister of finance and economy on Thursday, replacing Kang Bong-kyun.

Under Kang's reign, the ministry had vowed action to stabilise the currency market if and when necessary. Dealers said market players would be careful not to be overly short on dollars because Lee's position indicated the government could still intervene if there is a sharp dollar fall.

"The government's defence line seems to have moved back to the 1,120 level from 1,130," said another local bank dealer. "That will be tested next week."

Foreign investors were net buyers of 176 billion won worth of stocks on Friday despite a key index fall, raising expectations of dollar inflows as a result of settlements for foreign stock buying, dealers said.

They said the won was expected to strengthen steadily against the dollar this year because the country was likely to record a current account surplus, a Reuters poll released on Friday showed.

Foreign direct and equity investment in South Korea is expected to be robust, while the yen's strength is also seen pushing the won higher.

A poll of 10 interbank dealers and economists showed an average forecast of 1,080 won per dollar at the end of June and 1,034 won at the end of this year.

The finance ministry has said the country's current account surplus was expected to total $12 billion in 2000 after exceeding $25 billion for 1999.

Analysts said the dollar was currently overvalued against the won because of heavy intervention by monetary authorities late last year and early in January.

In the non-deliverable forward market, the six-month won closed at 1,123.2/25.5, while the one-year won was quoted at 1,128/31.-Reuters