Seoul shares end flat, investor sentiment remains fragile


The Korean currency slumped to its weakest level this year as a worsening crisis at a nuclear power plant in Japan prompted investors to favor safer bets than emerging-market assets.

The won closed local trade at 1,135.3 per dollar, around a 38 percent retracement support line drawn between December 2010 and February 2011.

It briefly weakened to as much as 1.144.0, its poorest reading since Dec. 29, 2010, sending the U.S. currency into overbought territory based on technical indicators.

“The situation in Japan is getting worse and foreign governments are evacuating their people from Tokyo,” said Thomas Harr, Singapore-based head of Asian foreign-exchange strategy at Standard Chartered Plc.

“The developments in Japan are very negative for emerging Asia, especially for Northeast Asia due to the growth impact and economic impact.”

The benchmark KOSPI inched up 1.06 points, or 0.05 percent, to 1,959.03. Trading volume was moderate at 301.9 million shares worth 6.85 trillion won ($6 billion), with losers outweighing gainers 567 to 257.

The Korean currency’s weakness against the U.S. dollar is complicating the Seoul government’s efforts to tame inflation, analysts said.

“Offshore investors snapped up the dollar, spooked by the Japan disaster, but exporters’ dollar sale and a rise in the key stock index prompted the won to trim earlier weakness,” said Jeon Seung-ji, a currency analyst at Samsung Futures Co. 

She added that the won is expected to have downward pressure against the greenback for the time being, but the pace of the won’s fall may be limited amid caution against dollar sale intervention.

The quake and fears about a nuclear crisis in Japan are raising speculation that Japanese companies and investors may repatriate assets to finance rebuilding costs, strengthening the Japanese currency. The yen traded at a post-World War II high of 76.52 per the dollar at one point.

The Korean currency lost ground as investors’ appetite for safer assets revived, fueling concerns that the won’s weakness could build up already-high inflationary pressure.

In the wake of the earthquake, crude oil prices declined to below $100 per barrel. But the won’s fall is expected to put upward pressure on consumer prices by jacking up import prices, complicating the government and the central bank’s efforts to tame inflation.

“The government is closely monitoring the foreign exchange markets,” said an official at the finance ministry.

Korea’s consumer prices jumped 4.5 percent in February from a year earlier, up from a 4.1 percent increase in January and the fastest growth in 27 months. Consumer prices surpassed the upper ceiling of the Bank of Korea’s 2-4 percent inflation target band for the second straight month.

The BOK raised the key interest rate by a quarter percentage point to 3 percent last week in an effort to curb growing inflationary pressure. BOK Gov. Kim Choong-soo said Wednesday that keeping price stability is “the greatest challenge” facing the economy.

(From news reports)