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U.S. Bailout Plan Lifts Korea`s Financial Market, Won

Posted September. 09, 2008 03:28,   


As the U.S. government plans to rescue two major mortgage lenders, the crisis-rumored Korean financial market has been rapidly stabilized.

The announcement of the bailout plan for Fannie Mae and Freddie Mac is expected to make a positive impact on Korea`s plan to issue forex stabilization bonds worth one billion dollars Thursday.

Stock and bond prices in Korea soared and the won rapidly gained versus the greenback.

Korea’s benchmark stock index KOSPI surged 72.27 points (5.15 percent) from Friday to close at 1,476.65 yesterday, the biggest surge of the year and the third largest in the country`s stock trading history following rises of 93.2 points last year on Aug. 20 and 82.45 points on Nov. 26.

For the second time this year, the "sidecar" was activated to suspend trading for five minutes from 1:35 p.m. due to the stock market`s rapid rise.

The tech-heavy KOSDAQ also jumped 17.47 points (3.95 percent) from Friday to close at 459.42, its second-highest rise of the year following a surge of 25.81 points Feb. 4.

All Asian stock markets except China`s showed robust growth yesterday. Japan`s benchmark Nikkei 225 increased 3.38 percent, Hong Kong’s Hang Seng Index jumped 4.32 percent and the Taiwan Stock Exchange soared 5.57 percent. In Europe, the U.K. FTSE 100 grew 3.81 percent and France’s CAC 40 surged 4.71 percent.

The won saw its biggest single-day rise against the greenback since the 1997 financial crisis. In Seoul, the exchange rate fell 36.40 won to close at 1,081.40.

The surge was the highest since April 7, 1998, when the rate slid 38 won per dollar. The won-dollar rate fell 67.1 won over three trading days, setting a new low since Aug. 25 (1,078.90 won).

The bond yield also fell for four straight days. The five-year government bond yield dropped four basis points to 5.84 percent.

The U.S. government announced it will pour up to 200 billion dollars in public funds to rescue Fannie Mae and Freddie Mac, and put the two mortgage lenders under state control.

In the biggest government bailout in U.S. history, up to 100 billion dollars will go into each of the lenders and the government will get senior preferred stocks, which are put above preferred stocks when dividends are given. The government will also purchase mortgage-backed securities issued by the two lenders to raise funds.

U.S. President George W. Bush said, “Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing."

"Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth," he said.

jefflee@donga.com higgledy@donga.com