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South Korean won plummets

SOUTH Korea's currency fell sharply yesterday, hitting an 11-year low amid general pessimism about the world economy and nagging local fears of a dollar shortage.

The won fell 2.3 percent to 1,570.30 against the greenback, its lowest close since 1,582 on March 11, 1998, when South Korea was in the throes of the Asian financial crisis.

The benchmark Korean Stock Price Index dropped 4.2 percent to 1,018.81 amid a broader decline in Asian regional markets after news the United States economy shrank at its fastest pace in more than 25 years and suggestions that the country's banks may need more capital injections.

The South Korean currency has now fallen about 20 percent so far this year after a nearly 26 percent drop in 2008, making it one of the world's worst performers.

The won has suffered as foreign investors have fled the local stock market and South Korean financial institutions face difficulties amid the global credit crunch in obtaining dollars to pay off foreign loans.

The currency's woes have led to media speculation that South Korea could be vulnerable to a foreign exchange crisis akin to the one it suffered in 1997 that forced it to seek an international bailout.

Foreign reserves

The government and most economists, however, say that the chance of such a crisis is remote given South Korea's trove of foreign exchange reserves - the world's sixth largest at US$201.74 billion, currency swap deals with other countries and an expected turnaround this year to a surplus in its broadest measure of trade from a deficit in 2008.

South Korea, an export powerhouse, has been hit hard by the global economic slump, with demand for its products falling sharply in recent months. Exports and production have wilted and the economy contracted 3.4 percent in the fourth quarter of last year.

More evidence of the country's weakening economy came yesterday with data showing that industrial production fell 25.6 percent in January from the same month last year.


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