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Stagflation Worry Sends Stocks Tumbling

Posted July. 03, 2008 06:40,   


The benchmark stock market KOSPI yesterday took a hit due to spreading worry over the threat of stagflation, or the phenomenon of low economic growth coupled with surging consumer inflation.

Surrounded by a series of difficulties including a further cut in the government’s economic growth forecast for this year, the KOSPI and the tech-heavy KOSDAQ both plunged.

The KOSPI fell 42.86 points (2.57 percent) from Tuesday to close at 1,623.60. As future prices tumbled, a sidecar designed to stop the effect of sale asking prices for program trading for five minutes was introduced on the KOSDAQ for the third time this year.

The tech-heavy market index fell 4.13 percent to 556.79.

Net selling (the amount of selling minus that of buying) by foreign investors reached its 18th consecutive trading day, reaching 432.9 billion won.

On the foreign exchange market, the won rose to 1,035 per U.S. dollar after falling to 1,057 at one point due to the stock market plunge. Government intervention, however, helped the Korean currency rebound versus the greenback.

On the bond market, the yield of Treasury bonds surged in the wake of an expected interest rate hike. The annual yield on the five-year bond increased 11 basis points from Tuesday to 6.07 percent, exceeding six-percent market for the first time this year.

ssoo@donga.com jarrett@donga.com