South Korea's won slumped, touching the lowest level since 2001, even as the government said it will use its foreign-exchange reserves to provide funds to the local financial system.
The currency, Asia's worst performer this year, tumbled as much as 7 percent, the most since December 1997 when the nation sought an emergency loan from the International Monetary Fund to meet debt payments. The government will use its currency reserves, the world's sixth-largest, to provide funds when needed, Deputy Finance Minister Shin Je Yoon said today.
“The government should try to ease the won's drastic drop, to calm investors, with its ample reserves,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “South Korea is much sounder in terms of economic fundamentals than it was during the 1997-1998 financial crisis.''
The won, the worst performing major currency, is now down 29 percent this year. Investors are concerned the deepening global credit crunch is creating a funding shortage for the nation's banks, exporters and manufacturers, eroding confidence and threatening the economic outlook.
South Korea has been building up its foreign currency reserves since Asia's financial crisis struck the region a decade ago. Those reserves fell for a fifth month in August to $243.2 billion, according to the central bank, as policy makers intervened to stem the won's slide.
Investors shouldn't overreact as the government can cope with the global financial turmoil, said Rhee Chang Yong, vice chairman of South Korea's financial regulator. The government is preparing “various'' measures in response, he said at a meeting today in Seoul.
`Clearly Different'
“The deteriorating overseas borrowing situation is mainly due to the global credit crunch,'' Rhee said. “The situation is clearly different from the financial crisis'' in 1997.
The won tumbled 4.5 percent to 1,325.60 per dollar as of 12:33 p.m. local time, according to Seoul Money Brokerage Services Ltd. The currency touched a low of 1,364.05 today, the weakest since April 2001.
Korea's Kospi stock index fell 0.4 percent today, and is down 29 percent this year, headed for its first annual loss since 2002 (cash loans). Investors overseas sold more of the country's shares then they purchased on all but 15 days since May as the financial turmoil prompted investors to exit emerging-market assets. Eight of the 10 most-traded Asian currencies weakened this year.
“Sentiment is extremely unstable as the crisis seems to be spreading fast,'' said Jay Won, a currency dealer at Korea Exchange Bank in Seoul. “People are panicking and they only want to hold dollars.''
Stabilize Currency
The government's priority is to stabilize the currency, Finance Minister Kang Man Soo said yesterday. Traders said the central bank yesterday intervened in the market after the currency slumped as much as 5.6 percent.
Kang yesterday urged banks to sell overseas assets to raise cash they can use to lend to local companies struggling with rising offshore borrowing costs. Lack of access to funds makes it harder for companies to pay wages and buy raw materials.
“This is not typically a fundamental problem,'' said Mirza Baig, a currency strategist in Singapore at Deutsche Bank AG, the world's top currency trader. “But when you are in the middle of a crisis, it does become a fundamental problem because nobody is prepared to refinance your maturing loans.''
Bonds Rose
Korea's government bonds rose on speculation policy makers will ease their monetary stance after a local newspaper reported the central bank may cut the reserve requirements for banks to help increase liquidity in the market.
The central bank may reduce the reserve ratio requirement and increase lending via repurchase agreements, the Korean- language Seoul Economic Daily reported, citing a government official it didn't identify.
Bank of Korea Governor Lee Seong Tae and fellow policy makers meet Oct. 9 to review interest rates. The bank kept its benchmark rate at an eight-year high of 5.25 percent last month.
The yield on the 5.5 percent note due June 2011 fell 4 basis points to 5.72 percent, according to Korea Exchange. The price rose 0.11, or 118 won per 10,000 won face amount, to 101.25. A basis point is 0.01 percentage point.
The crisis on Wall Street hasn’t hit the high cost of Manhattan real estate, but the economic slowdown has curbed the number of deals in the Big Apple, according to reports out Friday.
Sales figures from four major New York real estate agencies showed the average price for a Manhattan apartment rose in the third quarter over last year. At the same time, the number of apartments sold in the quarter declined sharply.
"The events of the second half of September in the financial markets and Washington have not shown up in the market data for the quarter, aside from the lower level of sales activity compared to last year’s record levels," said Jonathan Miller, president of New York real estate firm Miller Samuel.
The average price of a Manhattan apartment ranged from $1.4 million to $1.48 million in the third quarter of 2008, according to separate reports released Friday by Brown Harris Stevens, the Corcoran Group, Halstead Property and Prudential Douglas Elliman. That represents an increase of anywhere between 8% and 12% over average apartment prices in the third quarter of 2007.
But the rise in third quarter sale prices was skewed by a large number of deals in new luxury buildings, which went into contract as much as a year or two ago, before economic conditions deteriorated, but only closed recently, according to Corcoran Group CEO Pamela Liebman.
"The average sales price is going to trend down," Liebman said. After soaring to unprecedented heights in 2007, "we’re going to get back to a more normal range," she added.
Already the number of properties sold during the quarter saw a steep decline from the record highs hit in the third quarter of last year.
Corcoran sold fewer than 3,000 properties last quarter, down 45% from the nearly 5,500 properties the agency sold in the third quarter of 2007 (instant pay day loan).
At the same time, the number of properties on the market is increasing. Listing inventory rose 34% during the third quarter, according to Miller’s research.
"Clearly, inventory is moving higher as sales activity has fallen," said Miller, who attributed the slowdown at least in part to the fact that mortgages have become more expensive and harder to get.
And economic turmoil in Europe has crimped the flow of overseas buyers to the city. Miller estimates that foreign buyers made up one-third of all purchases in new developments in New York last year.
While the labor market in New York has remained relatively stable, the fallout from the crisis on Wall Street, and the corresponding rise in unemployment in the financial sector, will probably further undermine the city’s real estate market.
"We’re going into an uncertain economic period with volume at low levels and a low likelihood of new development," Miller said.
Miller said the direction of the real estate market could hinge on Washington’s proposed financial intervention, which is currently being debated in Congress and the outcome of this year’s presidential election.
One of the main goals of the bailout plan is to free up the frozen credit markets, which have been a major drag on economic activity - particularly in the housing market.
"The question of housing is almost moot unless you get a handle on where credit is going," Miller said.
NEW YORK — Dismal auto sales last month may be one of the clearest signs yet that faltering consumer confidence and tighter credit are squeezing consumer spending.
"It went from the housing market to the car market," said Reggie Chambers III, sales manager at Anderson Automotive Group in Baltimore.
Ford Motor Co., Toyota Motor Corp., Chrysler LLC and Nissan Motor Co. all reported U.S. sales drops of more than 30 percent Wednesday; General Motors Corp. said sales were down 16 percent. The final two weeks of the month were especially grim for car dealers as stocks tumbled, Washington dickered and credit markets froze.
To be sure, the auto industry has been reeling all year, thanks to falling house prices and record gas prices, which soured buyers on the light trucks and large cars Detroit had depended on for profitability. Now, the credit crisis is making things worse, as buyers struggle to qualify for loans and automakers scale back leasing.
CarMax said Wednesday that it is laying off 600 employees as the auto retailer tries to cut costs because of a decline in car and truck sales.
Spokeswoman Trina Lee said the reductions are in its service operations departments at a majority of its 60 production superstores. The employees were responsible for reconditioning vehicles.
Lee says the Richmond, Va., company notified the affected workers Wednesday.
The stock market roller coaster has made car buyers even more nervous. Stocks had a one-day loss, on paper, of $1 trillion Monday, for the first time in history. As the market fell, some luxury vehicle buyers called Toyota dealers asking for refunds on deposits they’d made, said Don Esmond, senior vice president of auto operations for Toyota in the U.S.
The last two weeks were "tantamount, really, to a natural disaster," said George Pipas, Ford’s top sales analyst bad credit payday loans. Showroom traffic looked like it does around a large storm, or in the weeks after the Sept. 11, 2001, attacks, he said.
"There’s just scare in the air," said Kitty Van Bortel, who owns both a Ford dealership and a Subaru dealership in Rochester, N.Y. "My opinion would be that sales are down because of the unknown, and that’s always the worst.
"People really don’t want to make a large purchase not knowing what exactly is going to happen."
Ray Ciccolo, president of Village Automotive Group, which operates six dealerships in the Boston area, said one lender has asked him to guarantee more loans, meaning that if the borrower doesn’t pay a set portion of the loan, his company is on the hook for that amount. In the past, only borrowers with bad credit required a guarantee.
Chief Executive Mike Jackson of AutoNation Inc., the largest U.S. dealership group, said tougher credit requirements from banks and finance companies — and limits on money to fund leases — have cost the 250-store chain 20 percent of its sales volume so far this year.
"Our standards have tightened," said Todd Denbo, a lending product manager at Wells Fargo & Co.
"We want customers to come in, even though it’s a difficult time, and sit down with a banker and find the right solution for them. It may not be the auto loan that’s the right fit for the customer."
Customers like Dee Gordon, 40, of Dansville, N.Y., are taking their time. Gordon was shopping with her 18-year-old daughter for an $8,500 used car.
"They’re going to be there, I keep telling my daughter," she said. "Nobody’s buying as fast as you think they are anymore."
Even trade-ins of gas guzz
Former Federal Reserve Chairman Alan Greenspan said financial markets and the economy will recover “sooner rather than later'' from the worst turmoil in seven decades.
“Trust will eventually reemerge as investors dip hesitantly back into the marketplace,'' Greenspan said today in a speech at Georgetown University's law school in Washington. “From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later.''
Greenspan urged lawmakers last week to back “extensive'' measures to tackle the worst financial crisis since the 1930s and head off a recession. The U.S. Senate passed a $700 billion financial-market rescue package yesterday loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version Sept. 29.
“We are living through the type of wrenching financial crisis that comes along only once in a century,'' Greenspan said today. “Financial markets freeze up as an excess of fear displaces a protracted period of what some might call irrational exuberance. Eventually the market freeze will thaw as frightened investors take tentative steps towards reengagement with risk.''
Greenspan, 82, who served 18 years as Fed chief, took office just before the 1987 stock-market crash. He led the central bank during two eight-month-long recessions, the Asian financial crisis, the 2001 terrorist attacks and the bursting of the Internet bubble faxless payday loan.
Deepening Crisis
He spoke amid signs the crisis was deepening. Corporate short-term borrowing plummeted 5.6 percent, the most on record, to the lowest amount outstanding in three years, the Fed said today. Separately, the cost of borrowing in dollars for three months in London rose for a fourth day as banks hoarded cash.
Greenspan, while not commenting today on the rescue bill, spoke from a text about the importance of property rights at a conference entitled, “Our Courts and Corporate Citizenship.'' He didn't take audience questions.
“Broken market ties among banks, pension and hedge funds and all types of non-financial businesses, will become reestablished, and our complex economy, that has the capacity to produce a fifth of the world's goods and services, will reemerge,'' he said.
The House may vote tomorrow afternoon on the rescue bill.
In a statement e-mailed to lawmakers Sept. 25, signed by Greenspan, former Treasury Secretary George Shultz and Stanford University economist Robert Hall, the three economists wrote that “the only way that financial institutions can continue to function is for the government to provide financial support.''
South Korea's export growth accelerated in September, buoyed by increased demand from Latin America and the Middle East.
Overseas shipments, which make up more than half of gross domestic product, climbed 28.7 percent from a year earlier, the Ministry of Knowledge Economy said in Gwacheon today. That compares with August's 18.7 percent gain and the 27 percent median estimate of 14 economists surveyed by Bloomberg News.
“The healthy exports numbers today show that there still is a bright spot for the economy,'' said David Kim, an economist at Taurus Investment Securities Co. in Seoul. “The Korean economy and the global economies have been hurt, but they may not be as bad as people are concerned about.''
The deepening global financial crisis is clouding the outlook for South Korea, which has been reliant on exports to propel the economy's expansion as domestic demand faltered. Shipments to China and the U.S., the nation's two biggest overseas markets, eased last month, today's report showed.
Imports surged 45.8 percent last month from a year earlier because of higher oil and raw material prices, resulting in a trade deficit of $1.89 billion.
South Korea's won has slumped 21 percent this year against the dollar, helping exporters by making their products cheaper overseas even as it drives up local prices by boosting the cost of imports.
The won rose 1.2 percent to 1,191.80 against the dollar at 10:14 a.m. in Seoul after yesterday tumbling to the lowest level since 2003. The Kospi index of shares fell 0.8 percent to 1,435.88, the fourth straight decline.
Ship Exports
Exports of ships surged 127 percent in September from a year earlier and exports of oil products gained 89 percent.
Hyundai Heavy Industries Co. and Samsung Heavy Industries Co., the world's two largest shipbuilders, posted record second- quarter profits as they benefited from high prices amid a global shortage of vessels to carry goods and fuel.
Shipments to Latin America surged 36.4 percent in the first 20 days of September and sales to the Middle East jumped 28.5 percent, today's report showed. Shipments to China increased 7.3 percent and exports to the U.S. rose 2.2 percent.
Slowing Growth
South Korea's economic growth slowed to 4.8 percent in the second quarter as household spending fell for the first time in four years.
Factory production rose by the least in 11 months in August and manufacturers' confidence dropped in September on concern sales and profitability will decline, reports showed yesterday.
“Exports, which have been supported by emerging market demand, are bound to lose steam a bit as the global economy slows,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul.
Posco, Asia's largest maker of stainless steel, said on Sept. 9 it planned to cut output in September following similar reductions in July and August because of weak demand.
Exports of semiconductors declined 10 percent in September. Those of automobiles dropped 18 percent after a labor strike reduced production, today's report showed.
Hyundai Motor Co., South Korea's biggest automaker, last week secured workers' approval for a sweetened pay deal, signaling an end to stoppages that have cost the carmaker at least 691 billion won ($583 million) in lost production.
Figures today may show inflation cooled in September, giving the central bank scope to consider an interest-rate cut to bolster economic growth, according to a survey of economists.
“The Bank of Korea may cut rates later this year or early next year to support the economy if inflation eases,'' Hyundai Securities' Lee said.
Policy makers will weigh risks to economic growth and inflation when setting policy, the central bank said yesterday, adding inflation will likely remain high “for a while.''
Governor Lee Seong Tae and his board kept the benchmark interest rate unchanged at an eight-year high of 5.25 percent last month. Their next decision is due on Oct. 9.
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