Won plunges to new low in 21 mos.

The Korean won has dropped to its lowest level against the dollar in 21 months. Financial markets are showing unstable movements as the KOSDAQ set new lows for the second day in a row and the Korean Composite Stock Price Index or KOSPI dipped below 500 once Thursday.

Analysts attributed the fall in Korean stock prices to the influence of the U.S. NASDAQ index, which collapsed to a 21-month low the previous day, and the won's shedding its value against the dollar. Nearly all the world's stock markets underwent the effect and headed into nosedives.

In the Seoul foreign exchange market Thursday, the won closed at 1,227.90 won to the dollar, up 10.90 won from a day earlier. This marks the lowest level since Mar. 15, 1999, when the won traded at 1,230 won to the dollar. Compared with the year's low of 1,204.40 won posted on Sept. 4, it marks a depreciation of 123.50 won in just three months.

Analysts said that the won sharply depreciated as banks bought up $140 million in reserves for bad loans on foreign currency-denominated assets, and oil refineries secured about $100 million. Also affecting the exchange rate was the yen, which dropped to 113.17 yen to the dollar, and the steep fall of 7.12 percent in the NASDAQ index.

Foreign exchange authorities said that the won's steep fall against the dollar was not desirable and that they were closely watching the market and would take measures if necessary. But the verbal intervention failed to stop the won's slide.

Currency experts forecast that the won will continue to fall against the dollar for the time being. Credit Suisse First Boston (CSFB) predicted that the won will drop as low as to 1,280 to 1,300 won to the dollar within six months.

Meanwhile, the KOSDAQ closed at 56.06, down 2.92 points or 4.95 percent from the previous day, setting a new low for the second consecutive day. In the past five days, a fall of 14.79 points or 20.9 percent was reported. The KOSPI also dropped 2.31 points or 0.45 percent to reach 511.90. The index fell to 497.31 in early trading but later rebounded slightly after foreign investors began to buy.

Other stock markets in Asia, including the Tokyo bourse, also suffered setbacks. The NIKKEI index fell as much as 700 yen at one point and closed at a yearly low of 13,423.21, down 491.22 yen or 3.53 percent. The Hangseng of Hong Kong closed at 14,674.79, down 255.93 points or 1.71 percent, while the TWI of Taiwan closed at 4,817.22, down 130.67 points or 2.64 percent. The STI of Singapore and KLSE of Malaysia also recorded falls of 1.23 percent and 2.30 percent, respectively.

The NASDAQ closed at 2,332.77, down 178.94 points or 7.12 percent, the seventh largest fall in history and the lowest since March 23 this year. The U.S. stock price index saw a drop of 43 percent this year, down 54 percent down from its highest point on March 10. The Dow index closed at 10,325.76, down 258.61 points or 2.44 percent.

Hong Chan-Sun hcs@donga.com