The South Korean won extended its gains against the dollar on Wednesday as hopes for additional economic stimulus packages at home and abroad boosted appetite for the country's assets including Seoul shares. The won found further support as investors remained cautious over possible dollar-selling intervention by the country's foreign exchange authorities.
The local currency is expected to rise further as fresh measures are likely to increase risk appetite among investors, although a slowdown in Asia's fourth-largest economy may weigh on the unit, analysts said.
"New measures to revive economies by the US and Korea will continue fuelling stocks and the won. Everybody knows the economy will slow down, but the degree might not be as steep as feared on those measures," said Jeong My-young, a currency strategist of Samsung Futures Inc.
The South Korean currency was quoted at 1,375.9/6.3 per dollar as, compared with Friday's domestic close of 1,390.9. Seoul financial markets closed on Monday and Tuesday for the Lunar New Year holidays. South Korean stocks ended up 5.91 percent, their biggest daily percentage gain in seven weeks. Foreign investors bought a net 148.2 billion won worth of shares in the country's main exchange.
As recent economic data point towards the economy's first recession since the Asian financial crisis, more investors expect the central bank to cut interest rates further. Earlier data showed South Korean consumer sentiment rebounded in January from a 10-year low in December but the deepening global recession's impact on the local job market has clouded its prospects, analysts said.
The grim picture is expected to limit the won's gains, analysts added. "Given a severe economic slowdown, I wonder how long stocks and the won could continue to rise," said an analyst at a local futures firm, asking not to be identified, as he was not authorised to speak to the press. Investors are keeping an eye on the Federal Reserve's policy meeting. The US central bank concludes a two-day policy meeting later in the day and could unveil new steps aimed at easing the credit crunch.