Fears for exporters pound S.Korean shares, won

By Park Jung-youn and Seo Eun-kyung

SEOUL, Nov 20 (Reuters) - South Korea's currency and share prices slumped on Thursday on fears for the country's exporters in the face of the global downturn, with the top regulator quoted as urging the central bank to take more dramatic steps to help.

The authorities were seen selling dollars to help the won <KRW=> after the country's currency fell to an almost 11-year low against the dollar in early trade.

Yonhap news agency quoted Financial Services Commission head Jun Kwang-woo as calling on the Bank of Korea to halve its benchmark rate to 2 percent and consider buying commercial paper from local companies to help them cope with a shortage of funds as nervous banks turn increasingly reluctant to lend.

"I think the situation could get better if the Bank of Korea aggressively lowers the benchmark rate by about 2 percentage points," it quoted Jun as saying in New York.

"The Bank of Korea should actively consider directly buying commercial paper from companies to ease fund shortages," he said.

The central bank has slashed its base rate by 125 basis points to 4.00 percent in a series of cuts, including the biggest in its history, from early October, as the global downturn bites into South Korean economic growth.

Jun's office in Seoul later denied the chairman was putting pressure on the central bank, legally independent of the government, saying he was referring to direct purchases of commercial paper and aggressive interest rate cuts in the United States as examples of policy measures being employed globally.

With domestic consumption already in decline, investors are increasingly fearful of the prospect of foreign markets buying fewer South Korean exports, which in recent years accounted for some 70 percent of economic growth.

On Wednesday, the Finance Ministry predicted that 2009 would see the country's second consecutive annual trade deficit for the first time in 12 years, although the current account should return to surplus.

COOLING DEMAND

Cooling demand for South Korean goods will further reduce dollars flowing into the economy and knock a bigger dent into the country's already worsening balance of payments position, which showed a record shortfall of $23 billion for the first nine months of this year in a dramatic swing from an $11 billion profit a year earlier.

The won has now lost 37 percent to the dollar so far this year, including a 13 percent loss this month alone with a record foreign selloff in Seoul stock markets. By 0115 GMT the won was quoted at 1,480.90/1,481.60 to the dollar, up from morning lows.

The main share index Seoul shares opened nearly 5 percent lower after the drop on Wall Street to 5-½ year lows, with tech exporters leading the fall as investors brace for a lengthy economic downturn.

At one stage, the index stood at around half the level at which it had closed 2007, but by 0108 GMT it had recovered slightly to 980.32 points.

Shares in Hynix Semiconductor (000660.KS), the world's No.2 memory chip maker, were down 11 percent to a near five-year low on fears that rival computer memory firms in Taiwan could receive government support, which could worsen a chip supply glut.

Banks, which have been among the hardest hit by the global financial storm, also fell sharply,. Banks have been battered on two fronts -- by the reluctance of foreign banks to lend them currency to service dollar loans and the increase in bad debts among customers at home. (Additional reporting by Yoo Choonsik; Writing by Jonathan Thatcher; Editing by Jan Dahinten)