By Lilian Karunungan

Jan. 2 (Bloomberg) — South Korea’s won and the Singapore dollar weakened in the first trading day of the year on concern a deepening global recession will hurt the region’s exports.
The won, Asia’s worst performer last year, slumped the most in two months after a report showed overseas sales fell in December and Finance Minister Kang Man Soo forecast no economic growth for the first half of 2009. Singapore’s currency rounded out a weekly decline as the government turned more pessimistic on the economic outlook. The Indian rupee slid to its lowest in a week after the government reported a slide in exports.

“Investors are focused back on the deterioration in growth,” said Goh Puay Yeong, a Singapore-based currency strategist at Barclays Plc, a unit of the U.K.’s third-biggest bank. “Asian currencies are weak today on the back of the poor data.”

The won fell 4.7 percent to 1,321.00 per dollar at the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. The currency shed 26 percent last year, the worst performance among the 10 most-traded regional currencies outside Japan.

The Singapore dollar weakened 1.5 percent to S$1.4539. The currency lost 0.5 percent in 2008, its first loss in three years. The Indian rupee slid as much as 0.8 percent to 49.13 per dollar, before trading down 0.2 percent at 48.865.

“The market may give back what was seen as a distortion in prices last month as this year’s economic prospects weigh on sentiment,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank. “The won will swing back and forth around 1,300 for the time being.”

Worsening Outlook

The won rose 15 percent in December, its biggest monthly gain in a decade, on speculation the authorities supported the currency to boost corporate balance sheets before the year’s end.

“Economic conditions in the New Year are likely to worsen,” Kang said in the text of his New Year speech released in Gwacheon on Dec. 31. “It will be difficult to sustain economic growth in the first half of 2009 as domestic demand is in a slump and export growth is slowing significantly.”

Bank of Korea Governor Lee Seong Tae also said in a speech to employees on Dec. 31 that the central bank will focus its interest-rate policy on reviving the flagging economy and stabilizing financial markets.

Factory production fell by the most on record in November and confidence among the nation’s manufacturers tumbled to the lowest level ever, reports showed this week. The economy is expected to expand 2 percent in 2009, the slowest in 11 years, the central bank said in its yearly outlook last month.

Weaker Euro

The euro fell against the dollar and the yen before a European manufacturing report today that will probably show a recession is deepening in the 16-nation region.

The euro declined to $1.3896 in Tokyo from $1.4045 late yesterday in New York. It dropped 4.2 percent last year. The currency also fell to 126.79 yen from 127.41 yen, after sliding 22 percent in 2008. The dollar traded at 91.23 yen from 90.74 yen. It declined 19 percent last year, the most since 1987.

Singapore’s currency fell to the lowest in almost two weeks after the government reported that the economy stayed in recession in the third straight.

The city state’s $161 billion economy declined 2.6 percent last quarter from a year earlier, compared with a revised 0.3 percent drop between July and September. Growth was 1.5 percent in 2008, the slowest in seven years. The economy may shrink as much as 2 percent this year, twice as much as a November prediction, the trade ministry said today.

Exports, Tourism

“Singapore’s dollar is still overvalued in our opinion,” said Tey Tze Ming, a market strategist at Saxo Capital Markets Pte in Singapore. “We are looking for the currency to fall to S$1.53 in three months’ time. Demand for the Singapore dollar will decline due to falling electronics exports and slowing tourist arrivals.”

Malaysia’s ringgit fell on signs economic growth will slow as exports slump.

The currency declined from a two-week high after Singapore today reduced its gross domestic product forecast. The island- state was Malaysia’s biggest export market last year, based on government data for the first 10 months of 2008.

“Singapore’s revision has added to the downside risk in Malaysia’s growth outlook,” said Wan Murezani Mohamad, an analyst at Malaysian Rating Corp. in Kuala Lumpur. “The ringgit will likely react to the negative sentiment rather than its fundamentals in the short term.”

Weaker Ringgit

The ringgit dropped 0.5 percent to 3.4680 per dollar in Kuala Lumpur, according to data compiled by Bloomberg.

The currency fell 4.2 percent in 2008, its first annual loss since a fixed exchange rate of 3.8 was scrapped in July 2005. The Kuala Lumpur Composite Index of stocks slumped 39 percent and government bonds advanced 8 percent.

Non-deliverable forwards show the ringgit may weaken to 3.4820 in three months. Forwards are agreements in which assets are bought and sold at current prices for delivery at a specified future date. They are settled in dollars.

Elsewhere, Vietnam’s dong was at 17,483.00 from 17,485.50 on Dec. 31. Financial markets in China, Indonesia, the Philippines, Taiwan and Thailand were closed for holidays.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
Last Updated: January 2, 2009 03:32 EST

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