SEOUL — South Korea’s embattled currency and stock market rose dramatically Thursday after the U.S. Federal Reserve announced a currency swap deal worth up to US$30 billion with Seoul’s central bank. In further good news for Asia’s fourth largest economy, the central bank reported a sharp fall in the September current account deficit to US$1.22 billion, compared with a record August shortfall of US$4.7 billion. And parliament approved a plan to provide a three-year state guarantee worth up to US$100 billion on foreign borrowing by local banks, in a move to stabilize turbulent financial markets. Despite foreign reserves of almost US$240 billion, South Korea was seen as vulnerable to the global financial turmoil because of a surge in short-term foreign borrowing by its banks in the past year. Some US$80 billion in foreign currency borrowing is due to mature by next June. The global credit crunch was complicating efforts to roll over those loans, causing a scramble for dollars and a plunge in the won. The Korean unit was Asia’s worst performing major currency this year, hitting a 10-year low against the dollar in recent days. On Thursday it closed at 1,250 won to the dollar — up 177 won from Wednesday’s close and the biggest single-day gain in almost 11 years. The stock market’s KOSPI index recorded its largest ever daily percentage gain. It closed up 115.75 points, or 11.95 percent, at 1,084.72.
The Federal Reserve Wednesday announced temporary “swap” lines of credit with central banks in Brazil, Mexico, South Korea and Singapore to help them tackle the credit squeeze.