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Baht, Won Lead Slump in Asia as Europe Debt Rift Dims Outlook

Asian currencies weakened as a lack of progress in resolving Europe’s debt crisis added to concern the global economic growth is slowing, prompting investors to cut holdings of emerging-market assets.

The won slipped from a one-month high after a rift emerged between France and Germany over how to enhance a bailout fund. European Union leaders will hold a summit on Oct. 23 to discuss solutions to the crisis. Thailand’s baht fell the most since January after the central bank said the economy may contract this quarter amid the nation’s worst floods in 50 years.

“Expectations for positive news on Europe’s debt crisis have subsided a little,” said Kim Seong Soo, a Seoul-based currency dealer with Kyongnam Bank. “Investors will be adopting a cautious stance ahead of the European summit this week.”

The baht weakened almost 1 percent to 30.99 per dollar as of 3:05 p.m. in Bangkok, according to data compiled by Bloomberg, headed for its biggest decline since Jan. 10. The won slid 1.1 percent to 1,145.17, Malaysia’s ringgit lost 0.7 percent to 3.1283 and Taiwan’s dollar declined 0.6 percent to NT$30.269.

The Bloomberg-JPMorgan Asia Dollar Index dropped 0.2 percent, the most in a week. The MSCI Asia-Pacific Index of stocks dropped 1.5 percent after the Federal Reserve said U.S. companies were becoming more pessimistic about the economic outlook.

French Finance Minister Francois Baroin said yesterday that Europe’s temporary bailout fund would be best enhanced with help from the European Central Bank, a position the ECB and Germany continue to oppose. German Chancellor Angela Merkel said yesterday the summit on Oct. 23 will not be “the end point” of the crisis.

Thai Floods

The Federal Reserve said the world’s biggest economy maintained its expansion last month, while companies reported more doubt about the strength of the recovery, according to the Beige Book survey released in Washington yesterday. Contacts generally noted weaker or less certain outlooks for business conditions, the survey showed.

The baht touched the weakest level since Oct. 12. Gross domestic product may shrink this quarter and the Bank of Thailand will probably reduce its 2011 growth estimate to below 3 percent from 4.1 percent currently, Governor Prasarn Trairatvorakul said today. The central bank left its one-day bond repurchase rate at 3.50 percent yesterday.

“The floods will hurt tourism, production, distribution and supply chains and reduce exports, hurting the baht,” said Minori Uchida, a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd.

The Taiwan dollar dropped the most in almost four weeks. A government report today showed overseas shipments grew 2.72 percent last month, the slowest pace in two years. Export orders were expected to increase 3.46 percent in a Bloomberg News survey.

‘Weaker Economic Outlook’

“Traders don’t dare take overnight positions as they’re still skeptical whether Europe will find a solution to solve the crisis,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB.

The Philippine peso declined 0.4 percent to 43.320 per dollar. The currency maintained its losses as Bangko Sentral ng Pilipinas left its benchmark overnight rate at 4.50 percent today, unchanged for a fourth straight meeting.

Elsewhere, China’s yuan weakened 0.12 percent to 6.3850 per dollar, according to the China Foreign Exchange Trade System. The currency dropped 0.1 percent to 6.4290 in Hong Kong. Indonesia’s rupiah slipped 0.7 percent to 8,862.

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