Won Leads Drop in Asian Currencies on Global Growth Concern

South Korea’s won led declines in Asian currencies as data from Japan and China heightened concern the global economic slowdown is worsening.

A preliminary reading for a Chinese manufacturing survey pointed to an 11th month of contraction and Japanese exports fell in August for a third month, reports released today showed. The Bank of Japan expanded its asset-purchase fund yesterday by 10 trillion yen ($128 billion), joining the Federal Reserve and the European Central Bank in announcing plans to pump money into financial markets.

“With shares and other currencies falling on economic concerns, we saw a lot of overseas investors covering their short positions on the dollar,” said Lee Jin Ill, a Seoul-based currency trader at Hana Bank. A short position is a bet an asset will decline in value.

The won dropped 0.8 percent to 1,123.15 per dollar in Seoul, the biggest decline since July 12, according to data compiled by Bloomberg. India’s rupee weakened 0.6 percent to 54.3050, Taiwan’s dollar slid 0.4 percent to NT$29.508 and the Philippine peso fell 0.3 percent to 41.765.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, fell 0.1 percent, reversing an earlier gain. The MSCI Asia Pacific Index of shares dropped 1.3 percent, the most in more than eight weeks.

Indian Political Spat

The rupee weakened the most in more than a month after the Trinamool Congress party, Prime Minister Manmohan Singh’s biggest coalition partner, said it will quit the government over policy changes announced last week.

Trinamool ministers will be pulled from the federal cabinet on Sept. 21, party leader Mamata Banerjee said on Sept. 18, signaling there’s still time for a compromise. Singh unveiled the biggest policy push of his second term last week by ending a 14-month freeze on diesel prices to cut the budget deficit, and allowing more foreign investment in aviation and retail industries.

“The Indian reforms are still work in progress and there are some concerns as to whether politics will come in the way,” said Thio Chin Loo, a senior analyst at BNP Paribas SA in Singapore. “The markets are worried about the possibility of a rollback.”

The ringgit fell to the lowest level this week, reversing an earlier gain, on the manufacturing report from China, the second-largest buyer of Malaysian goods in July. Beijing should make all preparations for its territorial dispute with Japan over islands in the East China Sea, including for military conflict, Wang Xiaoxuan, director of the Naval Research Institute of the People’s Liberation Army, wrote in the China Daily newspaper today.

Yuan Strengthens

“The China numbers were very disappointing and I am very much pricing in a hard landing for the Chinese economy,” said Suresh Kumar Ramanathan, a currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “The geopolitical risks surrounding the Japanese-Chinese spat are pushing the move in the ringgit.”

The yuan advanced beyond the key 6.3 per dollar level as the central bank set the reference rate 0.02 percent stronger at 6.3380. The currency, which can trade as much as 1 percent on either side of the daily fixing, touched 6.2945, the strongest level since April 17. It closed up 0.09 percent at 6.3038.

“With quantitative easing in the major economies, funds are flowing into Asia, and China is among the top destinations,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “The upside above the 6.3 level is limited as exporters are still facing great pressure.”

Elsewhere, Indonesia’s rupiah fell 0.2 percent to 9,570 per dollar. Thailand’s baht weakened 0.4 percent to 30.90, while Vietnam’s dong was little changed at 20,870.

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