S.Korea Foreign Reserves Dive Again on Ailing Won

South Korean foreign reserves dropped for a sixth consecutive month in September, the longest period of decline on record, as the country battled to slow a   sustained slide in the won currency to multi-year lows.

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The central bank said on Thursday foreign reserves fell $3.53 billion as the country poured in dollars to support the won, which fell 9.8 percent against the dollar in September for its biggest monthly loss since the 1997-1998 Asian financial crisis.

Bank of Korea figures showed that reserves dropped to $239.67 billion at the end of September from $243.20 billion at the end of August. The central bank cited intervention in swaps markets as a factor for the decline.

But the Finance Ministry issued a renewed pledge hours after the data was released that the government was resolved to keep the foreign exchange market in order and would continue to sell dollars when needed to shore up the currency.

Economists said South Korea's foreign reserves were more than enough to protect Asia's fourth-largest economy from a full-blown crisis anytime soon, but added the won's fate depended more on the development in the U.S. financial crisis.

"I don't see any problem with the size of the reserves even after months of decline, but the won's direction will eventually be set by the development in the global credit market situation," said Kim Jae-eun, an economist at Hana Daetoo Securities.

Reserves have fallen $24.58 billion since March, the data shows.

"The foreign exchange authorities expanded participation in the swap market to ease jitters in the local foreign currency money markets amid a deepening global credit crunch," the Bank of Korea said in a statement.

It said drops in the value of non-dollar currencies against the U.S. unit also contributed to the decline in foreign reserves, but did not provide a breakdown.

Currency traders and analysts have said the foreign exchange authorities also sold an unspecified amount of dollars in the spot market to prop up the ailing won during September.

The won had dropped more than a fifth this year to hit a 5-1/2-year low against the dollar this week, as the current account swung to a deficit following a surge in import prices and as investors sold off emerging market assets in the face of the global credit crisis. The won later recovered slightly.

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Vice Finance Minister Kim Dong-soo said the government would and could continue the fight to dispel excessive one-way bets against the won.

"The changes in the (dollar/won) exchange rate have recently been excessive even after we take into account the global financial instability," Vice Finance Minister Kim Dong-soo said during a scheduled meeting of officials.

"Excessive movements are always followed by rapid correctional movements (in the foreign exchange rates)."

The won has been suffering from drying dollar liquidity in the face of the U.S. financial crisis, but more fundamentally from the country's worsening current account positions hurt by surges in the cost of importing energy and raw materials.

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