South Korean won slumps to lowest level in decade

The South Korean won slumped for a fourth straight day, falling 4.8 percent to 1,395 per dollar, according to the Bank of Korea. It was the lowest level since Sept. 23, 1998, when the won was at 1,402 per dollar.

The won, which has fallen almost 33 percent this year, has suffered as foreign investors have steadily withdrawn from the local stock market and the country's external trade balance has deteriorated through much of the year due to soaring oil prices.

The Korea Composite Stock price Index, the country's benchmark bourse, tumbled another 5.8 percent Wednesday, taking its total decline so far this year to 32 percent, wiping out last year's gains.

Resource-poor South Korea, which imports almost all of its oil, expects to record an annual current account deficit this year for the first time since 1998.

Compounding the won's woes, the global credit crunch has also made it difficult for South Korean financial institutions to secure U.S. dollars for foreign currency funding needs, forcing them to sell won to acquire dollars, driving the local currency down further.

"Problems in global credit markets come at a particularly bad time for Korea," Alaistair Chan of Moody's Economy.com wrote in a note Wednesday. Chan added, however, that the government will use its hoard of foreign currency reserves to help local banks deal with foreign liquidity problems.

South Korea has about $240 billion in foreign exchange reserves, the world's sixth-largest total.

Government officials played down concerns, saying that the recent decline in oil prices will help South Korea soon return to a surplus in the country's broadest measure of trade on a monthly basis, while the weak currency will boost exports.

"Helped by the stabilizing global oil and raw material prices I am quite sure, very much sure, that we will record (a) surplus in the current account in the remaining three months," Bahk Byoung-won, President Lee Myung-bak's senior economic adviser, told local European business leaders Wednesday.

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Associated Press Writer Jae-hyun Jeong contributed to this report.