March 2 (Bloomberg) -- The South Korean won and the Indian rupee led declines in Asian currencies on signs the global recession is worsening, deterring investors from buying emerging- market assets.

The won dropped to the lowest level since 1998 after a report showed exports contracted for a fourth month, increasing concern that banks will struggle to get the foreign exchange needed to service debt. Asian stocks slumped after the U.S. economy shrank at the fastest pace in more than a quarter century, sending the rupee to a record low and the Taiwan dollar to its weakest in six years.

“Asian currencies are basically being beaten down along with stocks,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. “The U.S. numbers gave less consolation.”

The won slid 2.3 percent to 1,574.00 per dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. The currency reached 1,596, the lowest since March 1998. It has declined 20 percent this year, the biggest drop among the 10 most-traded Asian currencies outside Japan.

The rupee lost 1.2 percent to 51.7600 versus the dollar and fell as low as 51.8150, according to data compiled by Bloomberg. The Indonesian rupiah dropped 0.8 percent to 12,070 per dollar in Jakarta. Taiwan’s dollar weakened 0.6 percent to NT$35.174, according to Taipei Forex Inc., and touched NT$35.207, the lowest level since October 2002. The Singapore dollar fell to S$1.5553, the weakest since November 2006, before trading at S$1.5531.

Falling Exports

The drop in South Korea’s exports was the longest run of declines since 2002 and was due to weaker demand from the U.S., Japan and Europe. Overseas shipments decreased 17.1 percent to $25.8 billion from a year earlier following January’s record 33.8 percent slump, the Ministry of Knowledge Economy said in Gwacheon today.

“The won will remain under pressure as fewer exporters’ receipts are coming in with global unrest worsening a shortage of dollars,” said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. “There’s always a chance for government intervention which may reduce the volatility.”

The Kospi share index shed 4.2 percent as global funds sold more Korean shares than they bought for a 15th straight day, according to Korea Exchange.

The euro fell to a one-week low against the dollar after European Union leaders rejected calls to back an aid package for eastern Europe, fueling concern the financial crisis will deepen the region’s recession.

Indonesian Shipments

The euro declined to $1.2588 in London from $1.2669 late in New York on Feb. 27. It reached $1.2546, the weakest level since Feb. 19.

The Indonesian currency fell the most in two weeks after the government reported exports had the biggest decline in 22 years. Overseas shipments plunged 35.5 percent to $7.15 billion in January from a year earlier, the Central Statistics Bureau said in Jakarta.

“Investors think the economy will worsen,” said Muhammad Fauzi Halim, a currency dealer at PT Bank Resona Perdania in Jakarta. “Bank Indonesia is already intervening in the market in small amounts, only to show they are guarding the local currency.”

Central banks intervene by arranging purchases or sales of currencies to influence exchange rates.

Indonesia’s Jakarta Composite Index of shares dropped 2.2 percent.

Recession Outlook

Malaysia’s ringgit added to a two-month slide after a central bank report last week showed growth in Southeast Asia’s third-largest economy almost stalled last quarter amid a collapse in exports. Deputy Prime Minister Najib Razak will unveil a second fiscal stimulus package on March 10 to supplement a $1.9 billion spending plan announced in November.

“A prolonged recession in major economies will increase the downside risks to the local economy and the ringgit,” said Wan Murezani Mohamad, a senior analyst at Malaysian Rating Corp. in Kuala Lumpur. “Risk aversion will continue because investors haven’t regained their confidence and fiscal stimulus programs haven’t produced much impact yet.”

The ringgit declined 0.6 percent to 3.7275 per U.S. dollar in Kuala Lumpur, according to data compiled by Bloomberg. The currency earlier reached 3.7300, the weakest since February 2006.

Gross domestic product rose 0.1 percent in the final three months of 2008, Bank Negara Malaysia said in a statement after the market closed on Feb. 27. The central bank on Feb. 24 cut its overnight rate to record-low 2 percent, saying the economy may contract for the first time since 1998.

Sell Peso Forwards

The Philippine peso dropped 0.5 percent to 49.035 after touching 49.145, the weakest since Dec. 9.

Investors should sell peso offshore forwards due in three months as the currency’s decline against the dollar may accelerate on sliding remittances and exports, according to Standard Chartered Plc.

The peso, which has dropped 3.1 percent this year, will play “catch up” with other regional currencies as the global recession slashes overseas demand for Philippine goods and workers, the U.K. bank’s strategists Callum Henderson and Thomas Harr wrote in a research note today.

Elsewhere the Thai baht fell 0.3 percent to 36.24. Vietnam’s dong was little changed at 17,480.50. China’s yuan traded at 6.8430 from 6.8398 at the end of last week.

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.

Last Updated: March 2, 2009 03:56 EST