Government Boosts Won; Wall Street Lifts Market

Korea's financial markets showed signs of recovery Friday, buoyed by the overnight rally on Wall Street and the government's determination to prop up the won. The currency's value gained 1.69 percent and the benchmark stock-price index rose 2.54 percent to end a seven-day slide.

The won closed at 1,342.10 won against the U.S. dollar, up 23.10 won from Wednesday. Hit by a falling Japanese yen, the Korean currency traded early at 1,358.50 to the greenback, before coasting up on a wave of "buy" orders that seemed to have been placed by the government.

The Bank of Korea suggested Thursday that it planned to tap the nation's foreign-exchange reserves to bolster the won.

The central bank intervened in the market twice, at about 11 a.m. and 1:30 p.m., to buy won to halt the decline, dealers said.

Analysts warned that while the government's action may work temporarily, it would be unable to reverse the long-term trend of a weak won tied to a sinking yen.

"As the won's weakness is expected to continue, the government's intervention should come only when the currency's drop is too steep, compared with the yen's decline," said Oh Moon-seok, a researcher at LG Economic Research Institute.

J.P. Morgan, a U.S. investment bank, forecast that the won would sink to 1,390 won at the end of June and to 1,420 won in late September.

In Seoul's equity markets, the main Korea Composite Stock Price Index added 12.53 points to 506.22 on heavy foreign buying, while the Kosdaq index put on 2.17 points to 66.51.

The won's recovery also boosted the bond market. The yield on three-year government bonds fell by 12 basis points to 6.58.

by Kim Hyun-chul